The corporate structure is a complex one, and understanding how it's different from other business structures has to start with the very basics.

The most popular kind of business structure is the sole proprietorship or general partnership. These are popular for many reasons, but notably because they are easy to set up. It is a reason why most small businesses are set up this way, and it's something that you need to consider when owning your own business.

If you're considering forming a corporation, then it's likely because you want some of the protections that come with them. This is something that you should consider carefully. For one thing, it is important to know the difference between a C corporation and an S corporation.

Not all corporations are the same. Many a big company you can name off the top of your head is most likely a C corporation. This begs the question, however: what is a C corporation, and how does it differ from any other type of company structure?

The C Corporation Defined

The “C” in “C corporation” is one of the subchapters of the U.S. Internal Revenue Code (Code 26), a document that states laws regarding taxation, including, importantly, income tax.

C corporations are called so because they file under Subchapter C, and they are taxed based on income. So while the C Corporation is a common term for most corporations, it is also a legal, tax definition that states how a corporation is taxed.

What’s in a C corporation?

A C corporation is what many of us know of as a corporation’s business structure. What defines it as such is that it can have as many shareholders as it wants, has limited liability, has a board of directors that shareholders appoint, and is normally taxed based on income.

One characteristic of a C corporation is the unlimited number of stocks that can be offered, as well as the types, or classes of stocks. For example, a company can offer Class A stocks, as well as cumulative, and participating stocks. And since a C corporation can issue an unlimited number of stocks, it can have an unlimited number of shareholders. And the earnings are proportional to the percentage of shares owned, e.g. someone who has a 20% stake will get 20% of the income.

The unlimited number of shares such a company can offer can also help in its longevity. If an owner passes away or decides to sell their share of the company, the stocks can be transferred to future investors, keeping the company alive for as long as shares are held.

In short, ownership can be transferred to another person to ensure continuity of business. For example, after Steve Jobs of Apple passed away in 2011, the CEO position was taken by Tim Cook.

Limited liability is one of the most attractive aspects in business, as by default, it protects the assets of a company’s owners (or in the case of corporations, “shareholders”) from liability. Only the amount invested in the business is affected. So by nature, the corporation is treated as a separate legal entity, and no personal assets are affected, not only in taxes, but in cases such as lawsuits, where a corporation may have to compensate, depending on the outcome.

However, C corporations take time to start, as a name must be registered, a registered agent be designated, and most importantly, articles of incorporation be filed with the local government before business can start. In some cases, it can take several months before final approval.

C corporations always have to file taxes, and usually do so quarterly. And speaking of taxes, not only do they include income taxes, but others including disability, payroll, and unemployment. However, unlike other businesses, a C corporation can be subject to double taxation, in which earnings (income) are taxed on two levels: corporate income, and then personal income. However, the limited liability nature extends only as far as that.

Access to financing is easier for C corporations, which is something a company would desire, as banks and investors tend to prefer C corporations. Initial public offerings also help attract investors on a periodic basis, when shares are brought for sale. All of this eventually gives more money to the company. Such financing would be desired so that in case of any risk, the corporation will still have a reserve to cover itself from further trouble.

Another advantage of a C corporation is that it is viewed as a more established institution, especially by the general public. Prominent examples include Apple, McDonald’s and Samsung, whose brands have been established for a long time, and whose image is well known to even a layman. Aside from easier access to outside investment, it is more likely to hire top talent of high skill level.

A C corporation has a board of directors that is appointed by shareholders and makes decisions over how a corporation’s business will run. The board is required to attend meetings, at least yearly, to discuss the progress, future plans, corporate bylaws to amend, budgets etc., and must record all the pertinent details of the meeting in what are called “minutes” -- documents that hold details such as attendants, topics, and decisions made.

In a Nutshell

To put it more simply, a C corporation is what many of us think of when it comes to a corporation. It even has the basic fundamentals of a corporation. However, it has characteristics that differ it from other business structures like an LLC. From unlimited shares to better investor attraction, the C corporation mode has been chosen by many corporate organizations as a baseline for all of their business aspects.