Definition of incorporation

Definition

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Fundamentals of Stock Corporations › Kinds of companies

Definition A C corporation (or C corp) is a type of stock corporation in the United States with certain federal tax treatment. It is the most prevalent kind of corporation. Most large, well-known American companies are C corporations. C corporations differ from S corporations and other business entities in several ways, including how income is taxed and who may own stock. C corporations have no limit on the number of shareholders allowed to own part of the company. They also allow other corporations, as well as partnerships, trusts, and other businesses, to own stock.

In practice, for a few reasons, these companies are usually formed in Delaware, so legalities of all this are defined in Delaware law. You can think of Delaware law as the primary “language” of U.S. corporate law. Incorporating a company in Delaware has evolved into a national standard for high-growth companies, regardless of where they are physically located.

caution This Guide focuses specifically on C corporations and does not cover how equity compensation works in LLCs, S corporations, partnerships, or sole proprietorships. Both equity and compensation are handled in significantly different ways in each of these kinds of businesses.

Loosely, one way to think about companies is that they are simply a set of contracts, negotiated over time between the people who own and operate the company, and which are enforced by the government, that aligns the interests of everyone involved in creating things customers are willing to pay for. Key to these contracts is a way to precisely track ownership of the company; issuing stock is how companies often choose to do this.

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The Holloway Guide to Equity Compensation
Joshua Levy, Joe Wallin, and over 35 contributors
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