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Simple English definitions for legal terms
C corporation
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A quick definition of C corporation:
A C corporation is a type of company where the owners are called shareholders. The company is separate from the owners, which means it can make contracts and be responsible for its own debts. Shareholders can only lose the money they put into the company, and they get a say in how the company is run. However, the company has to pay taxes on its profits, and shareholders also have to pay taxes on any money they get from the company. This can make it more expensive to run a C corporation compared to other types of companies.
A more thorough explanation:
A C corporation is a type of legal structure for a corporation where the company's assets are separate from the owners' assets. This means that the owners, who are called shareholders, are not personally liable for the corporation's debts or legal issues. Shareholders contribute money or assets to the corporation, and in return, the corporation issues shares of its stock to the shareholders as evidence of ownership. Shareholders are entitled to any dividends the corporation pays, and if the corporation liquidates, they are entitled to all of the corporation's assets after all creditors are paid.
However, C corporations are subject to double taxation. This means that the corporation is taxed on its income, and then the shareholders are taxed separately on the income they receive from the corporation. This can be a disadvantage for some businesses.
For example, let's say that a C corporation earns $100,000 in a year. The corporation would pay taxes on that income, and then the shareholders would also pay taxes on any dividends they receive from the corporation. This can result in a higher overall tax burden for the corporation and its shareholders.
C corporations are the most common type of corporation, and they are often used by larger businesses or businesses with high-income owners. However, they can be more expensive to start and maintain than other types of businesses, and they are subject to more complex regulations and formalities.