Business owners in US has many choice of entities such as C Corp, S Corp, LLC, General Partnership or Sole Proprietorship. Many Business owners wonder what is best for them. If you are looking to pick either a C Corp or S Corp, its important to know “C Corp and S Corp Differences.”
While both entities provide Limited Liabilities for shareholders there are many differences especially when it comes down to stock ownership and Taxes. We have explained each type of Entity in Detail and also did a comparison between two. We hope this will help you pick the right type of entity.
What is C Corporation?
C is typically called the Regular Corporation. It is called a C Corporation as it is taxed under Internal Revenue Code Subchapter C.
C corporation pays its own taxes and distributes any profits to its shareholders as Dividends. Every year C Corp files form 1120 on or before April 15th. C corps can have any type of shareholders whether they are LLCs, C Corps, S Corps or Individuals.
There is no limits on how many shareholders a C Corp can have. It can also have different types of stocks such as Regular and Preferred.
What is S Corporation?
S Corporation is a regular corporation for legal purposes that has made a special election under Internal Revenue Code Subchapter S.
S Corp files form 2553 with IRS and elects to be treated as a S Corporation. Typically this is done for tax benefits.
S Corporation is a pass through entity that passes all its profits, losses and credits though to its shareholders.
Furthermore, S Corp doesn’t pay any taxes, but is required to file form 1120S with IRS every year on March 15th.
S Corporatoin that only have US citizens and Residents as shareholders and total number of shareholders cannot exceed 100. No other type of entity such as LLC or C corp can own S Corp share. Only a living trust is allowed to own S Corp shares besides individuals.
See More Details about S Corp By visiting our detailed Article Here
If you want to do a Late Election for S Corp, Learn by Clicking Here
C Corp Vs S Corp
S Corp is similar to C Corp legally but very different when it comes down to Taxes. We have compiled a detailed difference list of C Corp Vs S Corp where we have discussed C Corp and S Corp Differences.
|S Corporation||C Corporation|
|Continuity of Entity||Unlimited||Unlimited|
|Shareholders||Only 100 Shareholders allowed. All Shareholders need to be US resident or Citizens. No LLC or other entities can be shareholders.||Unlimited Shareholders. Shareholders can Non US citizens. LLCs other Corps even S Corps can be shareholders in C Corps.|
|Stocks||Only One type of Stock Allowed||Multiple types of Stocks allowed. Example Regular & Preferred.|
|Transfer of Interest||Readily acomplished through stock transfer||Readily accomplished through stock transfer|
|Acquisition of Capital||Acquired by issuing stock||Acquired by issing stocks|
|Tax Filing Required||Form 1120S; distributes K-1s to shareholders||Form 1120. C Corporation pays its own taxes.|
|Taxation of Income||Income Pass-Through to Shareholders.
Taxed directly to shareholders(no double taxation)
|Taxed at Corporate level. Any Money transferred to Shareholders get taxed again so C corp is known for its Double Taxation.|
|Fringe Benefits||Generally not deductible for over 2% shareholders||Deductible, but subject to many rules(mainly non-discrimination)|
|Recommended Pension Plans||Qualified plans||Qualified Plans|
|Major Advantages||Limited liability without double taxation of regular corporation
Tax Saving by helping lower Self Employment Taxes
|Limited Liability, Foreign Shareholders allowed, Multiple types of stocks allowed|
|Major Drawback(s)||Not every corporatoin qualifies for S Status; more limits on fringe benefits
Requires shareholders to Run payroll and Draw Reasonable Salaries.
|Greater cost, government regulations, and red tape; double taxation of income|