Overview of C-corporation & S-corporation (Inc.)
Corporations are business structures that create a separate legal entity. This separate legal entity will protect the owners from personal liability. This means that the owners are generally not liable for the corporation’s debt, lawsuits, and other business related liabilities. Below are some of the benefits of forming a corporation:
- The owners are protected from the corporation’s debt, lawsuits, and other business related liabilities.
- The corporate structure makes it easier to raise capital by selling stock to investors.
- The corporate structure can reduce taxes by avoiding self-employment tax and utilizing income splitting strategies.
- A corporation has a perpetual life. This means that the business continues to exist even if the owners leave the company or dies.
- The corporate structure can help develop credibility and professionalism.
When a corporation is formed, it always starts off taxed as a C-corporation. However, a special election may be filed with the IRS to change its tax structure to a S-corporation. Below is a chart outlining the differences between a C-corporation and a S-corporation.
| || Taxed as a S-corporation || Taxed as a C-corporation
| Taxed as a C-corporation
||Pass through taxation. All profits must be distributed to the owners and will be taxed only once.
||Profits are taxed at the corporate level and any profits distributed to the owners will be taxed again at the individual level which creates double taxation. However, income splitting strategies may be used to reduce tax liability.
| Self Employment Tax
||Generally, no self employment tax on pass through income.
||Generally, no self employment tax on profits distributed to owners.
| Ownership Restrictions
Some ownership restrictions apply. (Click here for details)
|Generally, no ownership restrictions.
||Used among businesses that would like pass through taxation and to avoid paying self employment tax.
||Used among businesses that would prefer to leave some or all profits with the company rather than having to distribute all profits to the owner(s).
My Legal Depot can form your corporation promptly and accurately at a fraction of the cost of an attorney. Our experienced staff will review your questionnaire for errors, prepare the formation documents, file them with the appropriate government office, create your post-formation documents, and ship the completed documents to you.
Forming a corporation can be time consuming and expensive. My Legal Depot has registered Legal Document Assistants (LDAs) that have experience in preparing and filing thousands of legal documents. Let us form your corporation promptly and accurately at a fraction of the cost of an attorney.
Click here for Frequently Asked Questions (FAQs) regarding Corporations.
Click here for more information about your State's Corporation Rules.
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