Types of U.S. Corporations: C Corp, S Corp and Other Forms
Updated September 2026
A corporation is a legal entity formed under state law. It is separate from its shareholders and can own property, enter contracts, hire employees, borrow money, sue, and be sued.
The phrase “type of corporation” can describe either the corporation’s legal form under state law or its federal tax treatment. These are not the same thing. A corporation formed under state law is generally taxed as a C corporation unless it makes and qualifies for another federal tax election.
Main Types of U.S. Corporations
- C corporation
- S corporation
- Nonprofit corporation
- Professional corporation
- Benefit corporation
State law controls which legal forms are available and how they are created. Federal tax law controls how the entity is taxed.
C Corporation
A C corporation is the standard federal tax classification for a corporation. It is a separate federal taxpayer and generally files Form 1120.
The corporation pays tax on its taxable income. When it distributes after-tax earnings as dividends, the shareholders can also owe tax on those dividends. This is commonly called double taxation.
Key Features
- No general federal limit on the number of shareholders.
- Foreign individuals and foreign entities can generally own shares.
- More than one class of stock can be issued, subject to state law and the corporation’s governing documents.
- The corporation can retain earnings, raise equity capital, and continue despite ownership changes.
- Shareholders generally have limited liability, but protection depends on state law, proper governance, and the facts.
A C corporation is often the practical corporate structure when the business has nonresident alien owners, foreign corporate owners, several classes of investors, or plans to raise institutional capital.
S Corporation
An S corporation is not a separate state-law entity type. It is a federal tax election available to an eligible domestic corporation or another eligible entity that elects corporate treatment.
An eligible corporation elects S corporation status by filing Form 2553 with the consent of all shareholders. The corporation generally files Form 1120-S. Its income, deductions, credits, and other tax items normally pass through to the shareholders.
S Corporation Eligibility Rules
Under current IRS rules, an S corporation must:
- Be a domestic corporation.
- Have no more than 100 shareholders.
- Have only allowable shareholders.
- Have only one class of stock for federal tax purposes.
- Not be an ineligible corporation.
Allowable shareholders generally include individuals, certain trusts, and estates. Partnerships, corporations, and nonresident alien shareholders are not allowed.
A foreign person who is a nonresident alien cannot own S corporation stock. U.S. citizenship is not always required. A resident alien can be an eligible shareholder, but residency status must be determined under the federal tax rules.
C Corporation Compared With S Corporation
- Legal formation: Both normally begin as corporations formed under state law.
- Federal taxation: A C corporation pays its own income tax. An S corporation generally passes tax items through to shareholders.
- Foreign ownership: A C corporation can generally have foreign shareholders. An S corporation cannot have a nonresident alien shareholder.
- Share classes: A C corporation can generally have multiple classes. An S corporation is limited to one class for federal tax purposes, although voting differences can be permitted.
- Tax returns: A C corporation generally files Form 1120. An S corporation generally files Form 1120-S and issues Schedule K-1 to each shareholder.
Nonprofit Corporation
A nonprofit corporation is formed under state nonprofit law. Forming the entity does not automatically make it exempt from federal income tax.
To obtain federal tax-exempt status, an eligible organization normally applies to the IRS under the applicable Internal Revenue Code section. Many charitable, religious, educational, and scientific organizations seek recognition under section 501(c)(3).
A section 501(c)(3) organization must be organized and operated for qualifying exempt purposes. Its net earnings cannot benefit private shareholders or individuals. Political campaign activity is prohibited, and lobbying is restricted. Federal and state filing duties can continue after exemption is granted.
A nonprofit corporation is not a substitute for a business whose owners expect to receive profits or distributions.
Professional Corporation
A professional corporation is a state-law entity for licensed professionals. State rules determine which professions can use it, who can own shares, who can serve as directors or officers, and how the name must be written.
Doctors, lawyers, accountants, architects, engineers, and other licensed professionals can be subject to professional-entity rules. The requirements differ by state and profession.
Professional incorporation does not automatically protect a professional from personal liability for the professional’s own malpractice. It can protect against some business obligations, but the exact protection depends on state law and the facts.
For federal tax purposes, a professional corporation is generally taxed as a C corporation unless it makes a valid S corporation election.
Benefit Corporation
A benefit corporation is a for-profit corporation authorized under the laws of participating states. Its governing documents and directors can be required to consider specified public benefits in addition to shareholder profit.
Benefit corporation status is a state-law designation. It does not create a special federal income tax classification. The entity is generally taxed as a C corporation unless it qualifies for and makes an S corporation election.
A benefit corporation is different from a certified B Corp. Certification is a private standard. Benefit corporation status comes from state law.
Other State-Law Variations
Some states recognize close corporations, statutory public benefit corporations, cooperative corporations, religious corporations, and other specialized forms. Their ownership, governance, reporting, and transfer rules depend on the state statute.
Publicly traded and privately held corporations are not separate federal tax classifications. These descriptions refer mainly to ownership and securities status.
Can an LLC Be Taxed as a Corporation?
Yes. An eligible LLC can elect to be classified as a corporation for federal tax purposes by filing Form 8832. It can then seek S corporation status by filing Form 2553 if every S corporation requirement is met.
The LLC remains an LLC under state law. The election changes its federal tax classification. It does not convert the LLC into a state-law corporation.
Which Corporation Works for a Foreign Owner?
A foreign owner can generally hold shares in a C corporation. A nonresident alien cannot be an S corporation shareholder.
The correct structure depends on the business model, source of income, planned distributions, financing, state operations, tax treaties, exit strategy, and the owner’s country of residence. A C corporation can also create dividend-withholding and international reporting obligations.
Foreign ownership can trigger additional filings. Examples include Form 5472 for a 25% foreign-owned U.S. corporation with reportable transactions and withholding reporting for certain payments to foreign persons.
How to Choose the Right Structure
Review these points before forming or electing a corporation:
- Who will own the company?
- Are any owners nonresident aliens or foreign entities?
- Will the business raise outside investment?
- Does it need more than one class of stock?
- Will profits be retained or distributed?
- Which states will the business operate in?
- Does the activity require a professional entity?
- Is the purpose genuinely nonprofit?
- What federal, state, and international filings will follow?
Frequently Asked Questions
Is every corporation a C corporation?
A corporation is generally taxed as a C corporation for federal purposes unless it makes and qualifies for another election, such as S corporation status, or receives recognition as a tax-exempt organization.
Can a foreign person own a U.S. corporation?
Yes. A foreign person can generally own a C corporation. A nonresident alien cannot own shares in an S corporation.
Does an S corporation pay no tax?
No. An S corporation generally passes income and other tax items to its shareholders, but it can still owe employment taxes, excise taxes, certain entity-level taxes, and state taxes. Special federal taxes can also apply in limited situations.
Is a nonprofit corporation automatically tax-exempt?
No. State incorporation and federal tax exemption are separate. The organization normally must apply to the IRS and meet the applicable requirements.
Can one person form a corporation?
Yes, in most states one person can form and own a corporation. That person can often serve in several corporate roles, subject to state law and the corporation’s governing documents.
Can a corporation change from C to S taxation?
Yes, if it meets every S corporation requirement and files a valid and timely Form 2553. The tax consequences of the change must be reviewed before the election.
Is a professional corporation the same as an LLC?
No. They are different state-law structures. Some states also permit professional limited liability companies. The available structure and ownership rules depend on the state and profession.
Get Help With Corporate Formation and Tax Compliance
4SYTE helps U.S. and foreign owners review entity options, form corporations and LLCs, obtain an EIN, and handle federal tax filings.
Contact us to discuss your business structure.
