If you wish to build a business a corporation, you will have some options. The most common involves choosing between a C corporation and an S corporation.
According to Smart Asset, these types of corporations get their names from the IRS tax code that distinguishes their taxation requirements. It is worth noting to avoid confusion that people usually refer to a C corp as just a corporation because it is the standard type.
Profits
One area where these corporations differ is when the business makes a profit. A C corp faces double taxation where the corporation pays taxes on the profits and then the shareholders also pay taxes on the profits. An S corp does not pay taxes on profits. It passes these through to the owners who will pay the taxes individually.
Losses
When it comes to losses, a C corp helps to protect the owners as the losses do not pass through to the owners. With an S corp, the owners do take on the loss.
Limitations
An S corp has some limitations that a C corp does not have. C corps can have unlimited shareholders and do not face any restrictions. Every shareholder of an S corp must be a U.S. citizen, and the S corp has a limit of 100 shareholders.
Additionally, S corps can only have one class of stock. C Corps have the ability to offer multiple classes of stock.
Similarities
Both types of corporations offer limited liability for owners. They require the same general set up processes and have similar organizational structures.
If you find yourself interested in setting up a corporation, contacting an experienced attorney for guidance regarding your unique situation can prove beneficial.
