What is the Difference Between C Corp and S Corp?

The main difference between a C Corp and an S Corp lies in the manner in which they are taxed by the IRS. Both C Corps and S Corps are legal entities separate from their shareholders, providing limited liability protection for their owners and shareholders. They must also adhere to compliance standards, such as adopting bylaws, issuing stock, holding regular meetings, filing government reports, and paying annual fees and taxes.

C Corp (C Corporation):

• Taxed at the corporate level with double taxation.
• Can have unlimited shareholders, and shareholders do not have to be U.S. residents.
• Best tax structure to attract investors or to prepare for a sale.
• More popular with larger companies due to greater flexibility in raising capital and issuing stock options.

S Corp (S Corporation):

• S Corps are corporations that have elected a special tax status with the IRS, which provides some tax advantages. S Corporations file IRS Form 1120S, and profits, losses, deductions, and credits are passed through to company shareholders.
• Limited to 100 shareholders, with various restrictions regarding ownership.
• Popular with small businesses and sole proprietorships due to potential tax savings and pass-through taxation.
• In general, S Corps are more suitable for smaller businesses with fewer shareholders.

However, the ideal structure for your business depends on careful analysis of various factors related to your specific situation. It is essential to consider your current needs and future goals when choosing between a C Corp and an S Corp.

Comparative Table: C Corp vs S Corp

Here is a table comparing the differences between C Corporations (C Corp) and S Corporations (S Corp):

Both C Corps and S Corps provide limited liability protection, are separate legal entities, and require filing formation documents with the state. However, they differ in terms of taxation, number of shareholders, and filing requirements for formation.