3 Key Differences in S-Corps vs. C-Corps
Irvine business lawyers provide assistance to companies in selecting the right business form. The choice of how a company structures itself as a legal entity can have a profound impact on the company and its owners, as well as on future business operations. Brown & Charbonneau, LLP helps you to make the right choice for your business organization and personal financial situation.
Many entrepreneurs will make the decision that the corporate form is the correct choice for their business structure because corporations provide important liability protections. However, even once you have decided to incorporate your business, you need to make a decision on whether to form an S-corporation or a C-corporation. There are big differences between the two types of corporate entities and Irvine business lawyers can provide you with insight into which business structure makes the most sense to meet your needs. Contact Brown & Charbonneau, LLP to find out more.
Three Key Differences Between an S-Corp and a C-Corp
Both S-corporations and C-corporations can provide protection from liability for company owners because the corporation is an entirely separate legal entity with a distinct identity from its owners. The company is considered its own “person,” and as long as corporate formalities are followed, shareholders who own a stake in the S-corp or C-corp are not at risk of losing any more than the money invested in the business if something goes wrong, such as a business bankruptcy or lawsuits against the company.
While S-corps and C-corps provide the same protection from liability for business owners, there are also some very important differences between the two different kinds of business entities. Three key differences between an S-corp and C-corp that need to be considered when you are selecting how to structure your business include:
- How the company is taxed: With a S-corp, profits and losses are declared on the personal tax returns of owners, much like with a partnership. The company has to file a tax return, but the corporation itself does not pay taxes. With a C-corp, the company is taxed on profits and then shareholders also pay taxes on dividends or distributions paid out by the corporation. This could result in situations where there is double taxation of money that the company earns.
- Who can own shares in the company: There are more restrictions on who can own an S-corp, whereas essentially anyone can own a C-corp. No more than 100 shareholders can own an S-corporation, and all S-corp owners have to be citizens or residents of the United States. No other corporations can own S-corp shares, nor can LLCs, partnerships, or most kinds of trucks. There can also be only one class of stock for S-corps. If you do not want lots of restrictions on ownership, a C-corp may be a better option.
- What is required for company formation: You have to file incorporation paperwork with the state of California and complete a formal process in order to form either an S-corp or a C-corp. Irvine business lawyers can assist with this process. The key difference is that there is an extra step that must be taken if you want to operate as an C-corporation. You have to file Form 2553 with the IRS in order to declare that you want your company to be treated as a Subchapter S corporation. An S-corp actually gets its name from the chapter of the IRS tax code that establishes the rules for this kind of company. It is important you do not miss the deadline for filing your company’s S-corp election form, so you should get help from an attorney to find out exactly what is required.
There are additional differences as well that could be important to you. Because there are so many different factors that must be considered when determining what type of corporate entity should be formed, entrepreneurs should work with experienced Irvine business lawyers in order to get personalized advice.
Getting Help from Irvine Business Lawyers
Irvine business lawyers at Brown & Charbonneau, LLP can provide invaluable assistance to startups and expanding companies as the business owners determine what kind of entity the corporation should operate as. To make certain you have selected the entity that provides you with the best protections, the smartest tax structure, and the overall traits that make the most sense for your business, you should contact an experienced attorney as soon as possible. Give us a call at (866)237-8129 or contact us online to get help from our knowledgeable legal team in deciding what kind of business entity you should become.