Which structure C-corp or S-Corp?

In our previous post on company structures, we covered the difference between LLC and an S-corp. To keep expanding on the different types to choose from, we will now compare C-Corp vs S-Corp. If you are a business that is planning to go public, considering C-Corp might be the way to go but if you are a small business that wants more tax advantages, then an S-Corp can be a better route. Let us go over differences between both and things to consider to make it clearer on what choice to make when choosing the structure for your business.

“If you are a business that is planning to go public, considering C-Corp might be the way to go but if you are a small business that wants more tax advantages, then an S-Corp can be a better route.”

In order to compare both of these types, let us go into some differences between both.

How would these 2 structures be defined:

C-Corp - A C corporation, under United States federal income tax law, is any corporation that is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately.

S-Corp - This structure adds protections to the owner's personal assets with limited liability. In addition, having this structure allows each individual shareholder to report the businesses profit and loss in their personal tax return. These added benefits, offer tax advantages for yourself and your business by the IRS. An S-Corp is better for small corporations.

Now that we have defined what each structure is. Let's dive into some of the comparisons.

Number of Owner's, Shareholders or Members

C-Corp - No Limit on allowed number of owner's, which similarly to an S-Corp they are referred to as "shareholders." In addition, a C-Corp has no restrictions on shareholders country of origin or corporate status.

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S-Corp - 100 owner's which are referred to in this company structure as "shareholders." Cannot be owned by individuals who are not U.S. citizens or permanent residents. Also, S corporation cannot be owned by any other corporate entity which includes ownership by other S corporations, C corporations, LLCs, business partnerships, or sole proprietorships.

Protection & Taxation

C-Corp - With this type of entity you get taxed twice. The corporation or business pays taxes at the corporate level by filing with the IRS the form 1120, and in addition shareholders pay taxes on income received in the form of dividends on their personal tax return. Similarly to an S-Corp, a C-Corp is not typically personally responsible for business debts and liabilities.

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S-Corp - With an S-Corp you are not liable for any business liabilities. However, the difference in this structure, is that you are only taxed once instead of twice. The shareholders pay on the profits they receive which is split among owner's depending on the agreement of what each receives.

Necessary to open each structure

C-Corp - State regulated and Articles of Organization and required tax numbers including IRS EIN (Employer Identification Number). Added documents such as adopting bylaws, issuing stock and holding shareholder meetings are necessary.

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S-Corp - State regulated. Need Articles of incorporations, bylaws and tax numbers including IRS EIN (Employer Identification Number). Added documents could be needed depending on your business.

Is transfer of ownership allowed?

The answer is Yes for both structures as it is transferable through a stock sale.

Things to consider

C-Corp - Voting records of the company director's, list of owner's names, percentage belonging to each owner, company bylaws must be kept up to date and readily available.

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S-Corp - Must have a board of directors. Also, just as an LLC, there are things to consider to stay in compliance. Further, must have annual shareholder meetings, keep record of meeting minutes and adopt corporate bylaws. In addition, there are extensive regulations in regards to issuing stock shares.

Can my company go public?

C-Corp - This type of entity can be private or choose to go public. When going public the stocks will be listed on the stock exchange where the general public can own part of the company through the purchase of stocks.

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S-Corp - Yes, however consideration of switching to a C- corp should be considered if going public depending on your business.

Should I have a business bank account?

Yes, as a rule of thumb, you should always separate business with personal. Open a business bank account, deposit money into it and start paying your business expenses through your business account.

There are absolutely more things to consider when determining if you should open an C-Corp or an S-Corp. However, there is no wrong or right answer, it all comes down to preference. Always speak with a professional that can explain to your more in detail on how the structure considered will affect your specific business. Each one can be tailored differently to benefit you the most. Scheduled a FREE initial consultation with out team to find out more info. As always, sending positive vibes your way. 🙏

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