A C-Corporation, or C corp, is described by the U.S. Small Business Administration as "a legal entity that’s separate from its owners," and the 📝Internal Revenue Service (IRS) recognizes it as a separate taxpaying entity for federal income tax purposes.
The SBA states that corporations "can make a profit, be taxed, and can be held legally liable." According to the SBA, corporations offer owners the strongest protection from personal liability but cost more to form and require more extensive record-keeping, operational processes, and reporting. The SBA describes corporations as having "a completely independent life separate from its shareholders," so a C corp can continue doing business relatively undisturbed if a shareholder leaves or sells shares.
The IRS explains that in forming a corporation, prospective shareholders exchange money, property, or both for the corporation's capital stock. The IRS describes corporate profit as "taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends," which "creates a double tax." The IRS adds that the corporation does not get a tax deduction when it distributes dividends and that shareholders cannot deduct any loss of the corporation. The SBA states that, unlike sole proprietors, partnerships, and 📝LLCs, corporations pay income tax on their profits. The SBA describes the S corporation as a special type of corporation designed to avoid the double taxation drawback of regular C corps.