A corporation is a type of business entity that exists under law as a separate “person” from the shareholders who own it. Most corporations exist indefinitely. There are many reasons to operate a business as a corporation. Factors include tax savings, asset protection, the ability to raise funds by selling corporate shares, etc.
For tax purposes, you will commonly hear about C corporations and S corporations. At the federal (and usually state) level, C corporation income is double-taxed. First, income is taxed at the corporate level. Shareholder distributions are then taxed as personal income. In contrast, S corporation income is usually passed directly to the shareholders and taxed at that level instead of double taxation.
C corporations tend to be large publicly traded companies while S corporations are more common for privately held businesses. Although entrepreneurs favor S corporations to C corporations, there is a growing trend to operate enterprises as limited liability companies (LLC) instead where the tax advantages of a limited liability company are similar to an S corporation and the formalities for operating a business are less burdensome.
