When starting a new business, there are many decisions that need to be made, such as location, size, products and services available, business hours, management structure, and business structure. In case you are unfamiliar with what a business structure is, a business structure is the manner in which you incorporate, either as an LLC, S-Corp or C-Corp.
Depending on the size and direction that you hope to see your business go in the future, you determine what structure is best for you and your business. Businesses that decide that an LLC is the best structure are generally small to medium-sized, and want to remain privately owned. For others that have determined that an LLC is not the right business structure for them, they can decide between the remaining two forms of corporations—an S-Corp or a C-Corp. What is the difference between a S-Corp and a C-Corp?
In simple terms, S-Corps and C-Corps are fairly similar, in that they are more alike than they are different. Some of the traits that can be found within both corporation structures include:
- Liability protection: Owners and shareholders are not held responsible for business debts or business liability.
- Corporate Structures: Unlike LLCs, S-Corps and C-Corps are required to have a business structure that breaks down into shareholders, directors, and officers of the company.
- Shareholders: Shareholders own the company and elect members of the board of directors.
- Directors: Directors oversee the larger issues of the company, such as overarching company goals, company affairs, and decision-making. Directors are also responsible for electing the officers of the company.
- Officers: Officers are the individuals who are responsible for the day-to-day business operations.
There are a few major differences between S-Corps and C-Corps, regarding the structure and financial responsibilities between key members of a corporation’s structure. These differences include:
- Ownership: Larger businesses will benefit from a C-Corp structure, because C-Corps allow for an unlimited number of shareholders. S-Corps limit the number of shareholders per corporation to 100, and all shareholders are required to be residents and citizens of the United States. Another major difference in ownership is that C-Corps, LLCs, and trusts can be owned by other corporations, whereas S-Corps cannot.
- Shareholder Rights: C-Corps allow for several different strata of shareholders, ones where some votes count for more or less than other shareholders. Generally speaking, the first few owners or founders have more say in the voting and operation of the business. S-Corps only have a single type of shareholder. Therefore, a C-Corp makes it easier for corporations to grow and sell shares.
- Taxation: For both S-Corps and C-Corps, personal income tax is paid on dividends taken from the corporation in the form of a salary. The difference comes when C-Corps also have to pay taxes at the corporate level, whereas S-Corps (like LLCs), are pass-through entities, meaning that shareholders pay the corporate tax as part of their personal income tax. Simply put, C-Corps have the possibility of double taxation—corporate and personal levels, but S-Corps are only taxed at a personal level.
So, what is the difference between a S-Corp and a C-Corp? There are only a few larger differences. When determining what option is going to work better for your situation and corporation, consult with an attorney or an accountant to ensure that you are making the best decision for your business to be successful! Silver Shield Services is a full incorporation service that can help you establish your new corporation, and get you started on your journey of business ownership! Contact us today!