Home
>
Small Business
>
Incorporating a Small Business: S corporations versus C corporations

Incorporating a Small Business: S corporations versus C corporations

If you've been considering incorporating your small business, you've probably been confused about the difference between S and C corporations.

The similarities between S and C corporations are as follows:

1. Both S and C corporations are both separate legal entities that offer limited liability protection. If, for example, the corporation is sued only the corporation's assets are at risk. The assets of the board members or CEO are usually safe.

2. An S Corporation is essentially a C Corporation that has a special tax status with the IRS, created by filing form 2553. The articles of incorporation that are filed with the state are same.

3. Both entities must hold annual shareholder's meetings. Meeting minutes must be kept with the corporate records. Failure to follow this procedure can result in a judge's decision to 'pierce the corporate veil' and hold the corporation's owners personally liable for any penalties or debts.

So what are the differences?

1. S and C Corporations differ greatly with regards to taxation. With S corporations any income or loss generated by the business appears on the personal tax return of the owners. This is often referred to as a "pass-through" tax entity.

2. C corporations are often referred to as separately taxable entities. As you've probably already guessed, any gains or losses do not appear on the owner's personal tax records

By now you're probably thinking, "What's the use of an S corporation if my tax statements aren't kept separate?"

The reason is this: Dividends paid to the small business owners from corporate profits may be taxed twice. The IRS can tax both the corporation and the owner.

3. S and C corporations also differ with regards to ownership limitations, some of which are as follows:

a. C Corporations can have an unlimited number of shareholders while S Corporations are restricted to no more than 100 shareholders. As a small business owner this shouldn't be much of a problem.

b. S corporations cannot have shareholders that reside outside of the United States. Practically anyone can own shares of a C corporation, regardless of where they reside.

c. Also, S Corporations ownership is largely restricted to individuals. C Corporations, other S Corporations, LLCs, partnerships and many trusts cannot own shares of an S corporation. C corporations can sell shares to individual or other legal entities.

Well there you have it. Basically S corporations offer the same liability protection without the tax separation or freedom of ownership. The restrictions placed on S corporations are hardly noticed by the bulk of small businesses with only a few owners. If you're still not sure what type of corporation to form, there's a lot more information about incorporating a small business at small-business-assistance.com

Jacob Wren operates small business assistance - a resource site for entrepreneurs that offers advice on small business assistance and an array of other small business topics.

disinfecting cleaning services Arlington Heights ..

In The News:

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

ChatGPT data breach exposes personal info of users through partner Mixpanel. OpenAI confirms names, emails compromised in security incident.

Android rolls out Emergency Live Video for 911 calls, letting dispatchers see real-time scenes during emergencies. Great for holiday travel safety.

Malicious Chrome and Edge extensions collected browsing history, keystrokes and personal data from millions of users before Google and Microsoft removed them.

Google's new Call Reason feature lets Android users mark calls as urgent before dialing, displaying an urgent label to recipients using Phone by Google app.

Medical history made as surgeons successfully restore sight to legally blind patient using world's first 3D printed corneal implant grown from human cells.

Data brokers aggressively collect your holiday shopping data to fuel scams and targeted ads. Learn how to delete your digital profile before 2025 starts.

Scammers are sending fake MetaMask wallet verification emails using official branding to steal crypto information through phishing links and fraudulent domains.

Learn what background permissions, push notifications, security updates, auto-join networks and app refresh mean to better manage your phone's privacy settings.

Criminals test stolen data by applying for deposit accounts in victims' names to prepare bigger attacks. Learn why banks won't share fraud details.

New study of 10,500+ kids reveals early smartphone ownership linked to depression, obesity, and poor sleep by age 12. Earlier phones mean higher risks.

A phone phishing attack compromised Harvard's alumni and donor database, marking the second security incident at the university in recent months.

AutoFlight's zero-carbon floating vertiport uses solar power to charge eVTOL aircraft while supporting emergency response, tourism, and marine energy maintenance.

A new phone return scam targets recent buyers with fake carrier calls. Learn how criminals steal devices and steps to protect yourself from this fraud.

New Anthropic research reveals how AI reward hacking leads to dangerous behaviors, including models giving harmful advice like drinking bleach to users seeking help.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

Holiday email scams, including non-delivery fraud and gift card schemes, spike in November and December, costing victims hundreds of millions, the FBI says.

Holiday visits offer the perfect opportunity to help older parents with technology updates, scam protection and basic troubleshooting skills for safer digital experiences.

Swiss scientists create grain-sized robot that surgeons control with magnets to deliver medicine precisely through blood vessels in medical breakthrough.

Researchers exploited WhatsApp's API vulnerability to scrape 3.5 billion phone numbers. Learn how this massive data breach happened and protect yourself.

Travel companies share passenger data with third parties during holidays, but travelers can protect themselves by removing data from broker sites and using aliases.

Xpeng's humanoid robot moves so realistically that crowds believed it was fake, marking a major advancement in robotics technology ahead of 2026 commercial launch.

Researchers discover phishing scam using invisible characters to evade email security, with protection tips including password managers and two-factor authentication.

iPhone and Android users can reduce battery drain and data usage by restricting Background App Refresh to Wi-Fi connections instead of mobile networks.

Scammers nearly stole an Apple account by exploiting the support system with authentic-looking tickets and phone calls, users can protect themselves with safety steps.