# C corporation

> A corporation that pays its own 21% tax, with owners taxed again on dividends. Northwind is one.

Source: https://lopifi.com/learn/business-entity-types-explained/c-corporation
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What is a C corporation, and what is double taxation?** A corporation that pays its own 21% tax, with owners taxed again on dividends. Northwind is one.

A [C corporation](https://lopifi.com/md/glossary/c-corporation) is a corporation that pays its own income tax: 21% of taxable income, on [Form 1120](https://lopifi.com/md/glossary/form-1120), every year. Every corporation is one unless it elects S status. Its owners hold stock, and they are taxed a second time when it pays them a [dividend](https://lopifi.com/md/glossary/dividend). That is [double taxation](https://lopifi.com/md/glossary/double-taxation).

> “The amount of the tax imposed by subsection (a) shall be 21 percent of taxable income.”

— [26 U.S.C. §11(b)](https://www.law.cornell.edu/uscode/text/26/11), Tax imposed on corporations

> “The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.”

— [IRS, Forming a corporation](https://www.irs.gov/businesses/small-businesses-self-employed/forming-a-corporation), Corporations — the double tax

Northwind is one. The founders bought stock for $60,000, and the board declared a $500 dividend on September 30 — the double tax in miniature: Northwind gets no deduction for it, and the founders report it as dividend income.

*[Journal entries: JE-1, JE-14]*

Northwind's equity entries: stock issued, and a dividend declared.

**C corporation**
- Pro: Any number and kind of shareholders, and any classes of stock — preferred included.
- Pro: Stock options, including incentive stock options.
- Pro: The only entity whose stock can be qualified small business stock.
- Pro: Losses carry forward as net operating losses against future profit.
- Con: Double taxation of profit paid out — 32.85% combined in this track's illustration.
- Con: Losses stay inside the company; owners can't deduct them.
- Con: A corporate return every year, loss or not, and state franchise taxes.
- Best for: Anything raising venture capital, granting options, or planning to be sold or go public.

A C corporation.

Why most venture-backed startups choose exactly this has its own lesson: [why startups are Delaware C corporations](https://lopifi.com/md/learn/why-startups-are-delaware-c-corps). Keeping one in good standing — Form 1120, estimated tax, Delaware's franchise tax — is the [Compliance & tax track](https://lopifi.com/md/learn/compliance).

## Where this page's rules come from

- [26 U.S.C. §11(b)](https://www.law.cornell.edu/uscode/text/26/11) — Tax imposed on corporations (statute)
- [IRS, Forming a corporation](https://www.irs.gov/businesses/small-businesses-self-employed/forming-a-corporation) — Corporations — the double tax (irs)
- [Form 1120](https://www.irs.gov/pub/irs-pdf/f1120.pdf) (PDF) — U.S. Corporation Income Tax Return (PDF) (form)
- [Wikipedia, “C corporation”](https://en.wikipedia.org/wiki/C_corporation) — C corporation (reference)

## Read further

- https://lopifi.com/md/journal-entries/issuing-common-stock
- https://lopifi.com/md/journal-entries/dividends
- https://lopifi.com/md/journal-entries/income-tax-provision
- https://lopifi.com/md/accounting/form-1120
- https://lopifi.com/md/accounting/net-operating-loss

- **Track:** [Entity types](https://lopifi.com/md/learn/entities)
- **Part of:** [The entity menu](https://lopifi.com/md/learn/business-entity-types-explained) — 4 min
- **Terms taught:** [C corporation](https://lopifi.com/md/glossary/c-corporation), [Double taxation](https://lopifi.com/md/glossary/double-taxation), [Dividend](https://lopifi.com/md/glossary/dividend), [Form 1120](https://lopifi.com/md/glossary/form-1120)
- **Previous:** [Limited liability company (LLC)](https://lopifi.com/md/learn/business-entity-types-explained/llc)
- **Next:** [S corporation](https://lopifi.com/md/learn/business-entity-types-explained/s-corporation)
- **The course:** https://lopifi.com/md/learn