S-Corp and C-Corp are both separate legal entities that provide limited liability to owners and have similar ownership and capital generation provisions administering them. At the same time, they also have some important differences, with each option providing unique benefits, limitations around taxation, and ownership structures.
So how do you know which corporate structure is right for your business? Let’s find out.
What are S-Corp and C-Corp?
Before diving into the differences, you have to understand what the terms S-Corp and C-Corp mean.
What’s an S-Corp?
An S-Corp, also known as the S subchapter, is a type of corporation that allows its owners to pass income, along with other deductions, losses, and credits, directly to shareholders without the compulsion to pay federal corporate taxes.
Having an S-Corp status gives small businesses (100 or fewer shareholders) the regular benefits of incorporation while enjoying the tax-exempt privileges of a partnership business. It’s a federal tax status and not a legal business entity. Therefore, limited liability companies, limited liability partnerships, and traditional corporations may elect S Corporation status.
What’s a C-Corp?
A C-Corp is a legal structure for a company authorized by the state to transact business.
As the business is treated as a separate body from its owners, it has its own assets, liabilities, obligations, and rights and must pay corporate inc… Read More