“C” Corporation
The “C” in C corporation comes from Subchapter “C” of the IRS’s tax code and has long been one of the most common types of corporations. One of the chief differences between an “S” and a “C” corporation is that the income in a “C” corporation is taxed, whereas it is not in an “S” corporation; therefore, taxation is a major consideration when choosing which type of corporation is right for you and your business. For example, shareholders of “C” corporations may be double taxed, since corporate profits are taxed at both corporate and individual levels.
Another distinguishing difference between “C” and “S” corporations has to do with shareholders. A “C” corporation can have an unlimited number of shareholders, either domestic or foreign, whereas the number of shareholders in an “S" corporation is limited both in number and citizenship.
State and Federal Requirements
“C” Corporation
The “C” in “C” corporation comes from Subchapter “C” of the IRS’s tax code and has long been one of the most common types of corporations. One of the chief differences between an “S" and a “C” corporation is that the income in a “C” corporation is taxed, whereas it is not in an “S” corporation; therefore, taxation is a major consideration when choosing which type of corporation is right for you and your business. For example, shareholders of “C"”rdquo;corporations may be double taxed, since corporate profits are taxed at both corporate and individual levels.
Another distinguishing difference between “C” and “S” corporations has to do with shareholders. A “C” corporation can have an unlimited number of shareholders, either domestic or foreign, whereas the number of shareholders in an “S” corporation is limited both in number and citizenship.
State and Federal Requirements
- Articles or a certificate of incorporation must be filed with appropriate state agency.
- Fees must be paid to the state in which the business is incorporated.
- IRS Form 2553 must be filed to elect the C corporation option. Bear in mind that this can take as long as two months to process through the IRS.
“C” Corporation Advantages
- Personal assets of shareholders are not at risk since they are not held liable for the corporation’s debt.
- A “C” corporation can have an unlimited number of shareholders.
- Some business expenses, such as annual corporation fees, are tax-deductible.
- Generally speaking, “C” corporations are not audited as frequently as are sole proprietorships.
- If the corporation needs additional capital, it can sell some of its stock.
- Through the sale of stock, ownership of a “C” corporation can easily be transferred.
- The lifetime of a “C” corporation is not limited by its owners, so the corporation will continue even after the death of its owners.
- In a world where perception is king, many will perceive a business that has been incorporated as being more professional.
- The corporation is a separate legal entity owned by the shareholder(s). Because of this, the shareholders cannot be held personally responsible for the debts of the corporation. The shareholders' personal liability is typically limited to the amount the shareholder invested in the company.
“S” Corporation
The “S” in “S” corporation comes from the IRS’s tax code, Subchapter “S” of Chapter 1, so overall the designation is all about taxes. But from an overall business standpoint, there is much more to a corporation than its tax status, but first let’s look at key points determined by the IRS.
State and Federal Requirements
- Articles or a certificate of incorporation must be filed with appropriate state agency.
- Fees must be paid to the state in which the business is incorporated.
- IRS Form 2553 must be filed to elect the S corporation option. Bear in mind that this can take as long as two months to process through the IRS.
Shareholder restrictions
- Fewer than 100 shareholders are permitted.
- Shareholders cannot be:
- Foreigners
- Limited Liability Companies (LLCs)
- Other “S” Corporations
- “C” corporations
- Certain trusts
If you’re still not sure that an S corporation is right for you and your business, you might find it helpful to consider these advantages.
“S” Corporation Advantages
- Personal assets of shareholders are not at risk since they are not held liable for the corporation’s debt.
- Taxes are “passed through” to individual shareholders, so there is no double taxation.
- Some business expenses, such as annual corporation fees, tax-deductible.
- Generally speaking, “S” corporations are not audited as frequently as are sole proprietorships.
- If the corporation needs additional capital, it can sell some of its stock.
- Through the sale of stock, an “S” corporation can easily be transferred to a “C” corporation.
- The lifetime of an “S” corporation is not limited by its owners, so the corporation will continue even after the death of its owners.
- In a world where perception is king, many will perceive a business that has been incorporated as being more professional.
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