Corporation

A corporation is a legal entity (distinct from a natural person) that often has similar rights in law to those of a natural person. Civil law systems may refer to corporations as "moral persons;" they may also go by the name "AS" (anonymous society) or something similar, depending on language (see below).

Corporate taxation

In many countries, including the United States and United Kingdom, corporate profits are taxed at a corporate tax rate, and dividends paid to shareholders are taxed at a separate rate. Such a system is often referred to as "double taxation," because any profits distributed to shareholders will eventually be taxed twice.

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Where a double taxation system exists, the additional tax burden is often an incentive for smaller businesses to organize in the form of a partnership, limited liability company, or other type of entity that is not separately taxed. Such entities are often called "pass-through entities."

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In the United States, business corporations owe taxes according to two basic categories. A "C corporation" must pay corporate taxes, while "S corporations" pay no corporate taxes but instead pass profits and losses directly to their owners (the stockholders) who declare such profits and losses as part of their personal taxable income. An S corporation must generally have no more than 75 stockholders, all of them natural persons (not other corporations or entities), and all of them residing in the United States; moreover, the S corporation can only issue a single class of stock. As a result of these restrictions, all publicly traded corporations and many larger close corporations have C corporation status.

Related Topics:
United States - C corporation - Corporate tax - S corporation - Taxable income - Natural person

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