What best describes a C corporation?

A C corporation is classified as a separate legal entity from its owners, meaning it is subject to corporate income taxes at the federal and state levels. This structure allows the corporation to generate profits that are taxed independently of the shareholders. While shareholders may later be taxed again on dividends received, this characteristic of direct taxation is a defining feature of C corporations.

The other aspects mentioned in the incorrect options help to further delineate the characteristics of different business entities. For instance, the limitation of shareholders (option B) is a notable feature of S corporations, which cap shareholder counts to maintain their special tax treatment status. Subchapter S tax treatment (option C) pertains to S corporations, not C corporations, as S corporations allow earnings and losses to pass through to shareholders, avoiding the double taxation prevalent in C corporations. Lastly, being owned by sole proprietors (option D) describes sole proprietorships rather than C corporations, which are typically owned by multiple shareholders. Understanding these distinctions aids in grasping the unique aspects of C corporations and their treatment within the larger business law framework.