 Hello in this lecture we will define C corporation according to fundamental accounting principles while the 22nd edition the definition of C corporation is corporation that does not qualify nor elect to be treated as a proprietorship or partnership for income tax purposes and therefore is subject to income taxes also called C corp. The definition is contrasting the normal corporation being a C corporation to other types of entities which could have corporation elements as well as elements of a pass through entity. C corporation is generally going to be the default in other words if we set up a corporation then typically it will be a C corporation unless set up otherwise let's take a look at an example the idea of the corporation itself is that the corporation will be a separate legal entity from the shareholders huge benefits for the corporation to be a separate legal entity one would be that the corporation has its own assets and has the rights to those assets separate from the shareholder meaning that if something happened in terms of liability in terms of a lawsuit the idea is that the lawsuit could go after the corporate assets and there could be some liability protection for the owners the shareholders and stockholders to their personal assets allowing a lot more capital to be invested in a corporation the downside of a corporation typical corporation a C corporation is that they're also subject to income tax if we give the rights to the corporation to own property and earn revenue then they also have the rights to pay the taxes or the obligation we should say to pay the taxes on the revenue that is earned so the taxes are going to be taxed on the corporate level here rather than the owner's level and they would be taxed on the owner's level if it was a sole proprietorship or a general partnership there's other types of entities to try to solve this problem because what that what happens with that the reason it is a problem is that it's going to be taxed on the corporate side and then when the money is taken out of the corporation by the shareholders in terms of a dividend being distributed to the shareholders that dividend then gets taxed on the shareholder side resulting in double taxation on the same income so in order to eliminate or try to remove that double taxation but still keep the benefits of the C corporation we want to keep that liability protection and have a pass through of the taxes of the income to the shareholders two types of organizations that could set this up it would be an S corporation or an LLC those are going to be two types of setting up the organization in which we're going to try to keep that liability protection for the corporation however the income from say an S corporation or an LLC would then flow from the the entity in terms of the business entity to the shareholders in terms of their 1040 and would then be taxed as on the 1040 eliminating that double taxation on the corporate side and the shareholder side also important to note that this idea of separating the corporation from the shareholders is a business concept in terms of just bookkeeping we do that all the time we separate the books even if it's a sole proprietor from the owner so that we can track the business progress as well as the owner's progress that's separate from the idea and the concept of being a separate legal entity a C corporation is typically going to be is going to be a separate legal entity all entities we're going to try to separate the bookkeeping in order to keep better books