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What are the differences between C and S corporations?

What are the differences between C and S corporations?

When an entrepreneur is considering setting up a new business and is deciding which business form to select, they may wonder about the different corporate business forms. Understanding the differences between a C corporation and an S corporation can help them better decide on the best business form for them.

The primary difference between a C corp and an S corp is the tax treatment of the corporation. C corporations are sometimes considered double-taxed. This is because the corporation is first taxed and then shareholders are also taxed on their personal individual tax returns. The advantage of a C corp is that there are no restrictions on the number of shareholders it can have or who can own shares.

Pass-through taxation

S corps are different because they enjoy pass-through taxation similar to a sole proprietorship or partnership. Income is taxed at the individual level but the corporation itself has no tax liability. Who can own shares in an S corp is restricted and the number of shareholders is limited to 100 which limits the company’s ability to go public at some point which can be a downside for some new business owners. Both types of corporations provide protection from personal liability.

Business law can help guide new business owners through setting up their business and making all the important decisions associated with getting it off on the right foot. To help accommodate the business as it grows, it is helpful to be familiar with the differences between the different business forms and what they mean.