Thinking of incorporating your business? You should know that there are two different types of corporations to choose from, a C corporation and an S corporation. A C corporation is the standard type of corporation while the S corporation is a standard corporation which has chosen a special tax status. C corporations and S corporations have their similarities and differences.
C corporations and S corporations have limited liability for their owners, meaning that the owners are not personally liable for any of the company’s liabilities. Both are considered separate legal entities and are required to file the same documents with the state. Both C corporations and S corporations have shareholders, directors, and officers. The owners of the company, also known as shareholders, select the board of directors who in turn elect officers to run the daily activities of the company. Lastly, both C corporations and S corporations are required to file annual reports, pay annual fees, adopt bylaws, issue stock, hold annual meetings of shareholders and directors, and keep minutes of these meetings.
One of the main differences between a C corporation and an S Corporation is the way in which they are taxed. C corporations are separate taxable entities and therefore file a corporate tax return. This causes them to face the possibility of double taxation if profits are distributed in the form of dividends to the shareholders. On the other hand, S corporations considered pass-through entities. Meaning that they still must file a corporate tax return, but they are not taxed at the corporate level. Another difference is that a C corporation can have an unlimited number of shareholders, while an S corporation is limited to one hundred shareholders. C corporations can have more than one type of stock and an S corporation is limited to only one kind of stock.
These are just some of the things that one needs to consider when choosing what type of corporation to become.