What is the Difference between an S-Corp and a C-Corp?

Many entrepreneurs have similar questions in the initial phases of their business venture, such as:

• Which business structure and tax election suits me best?
• What is the difference between an S-Corp and a C-Corp?
• Do you have to integrate to become an S-Corp or a C-Corp?

An S-Corp and a C-Corp differ in terms of taxation and development but are similar in their operations; thus, the best fit can be determined based on your business target. 

1. S-Corporations (S-Corps)

To be an S-Corp, you are required to openly elect; in other words, you should submit an Internal Revenue Service Form 2553, known as Election by a Small Business Corporation, to obtain tax as an official S-Corp. 

Pros

With S-Corps, there is no double taxation. The income allocated for the shareholders has a tax, but there is no tax added to the profit, unlike C-Corps. As a result, most small businesses opt for this business structure to keep a larger portion of their profits. 

However, some states apply double tax in S-Corps, like Texas, Tennessee, New Hampshire, and District of Columbia. 

Cons

A potential negative of an S-Corp is that there is a maximum of only 100 shareholders. Additionally, there is only one type of stock that can be issued for possession by any of the C-Corps or by an S-Corp. 

2. C-Corporations (C-Corps) 

C-Corps are considered “default” corporations since they are typically the default description assigned to corporations when initially filing the “Articles of Incorporation.” In most cases, businesses are automatically classified as a C-Corp during the initial file submission.

Pros

There are many positive aspects to a C-Corp, such as:

• Ability to increase capital.
  • Because C-Corps have less limitations with shareholders, they can produce a considerable amount of capital. 
• Flexibility for public exchange. 
• Capacity to provide numerous forms of stocks. 
• Ability to accommodate an unlimited number of shareholders.
• Ability to seek financial assistance internationally. 

For these reasons, bigger companies tend to choose C-Corps. 

Cons

However, there is a negative to choosing a C-Corp known as “double taxation.” This taxation is imposed on the dividends given to each of the shareholders and on the profit of the corporation. 

This can be a determining factor in choosing the type of taxation that is best for your company. 

Limited Liability Company (LLC) Election

Your LLC can be taxed as either an S-Corp or a C-Corp, but deciding which one is best for your business can be easily identified with the proper guidance. 

Are You Deciding Between an S-Corp and a C-Corp? We Can Help You

If you are deciding between an S-Corp and a C-Corp, you need the guidance and assistance of qualified and experienced business attorneys. 

At Jurado & Associates, P.A., we have the knowledge and expertise to help you make the best decisions for your business. Contact us today by phone at (305) 921-0976, by email at [email protected]m, or WhatsApp at +1 (305) 921-0976.