Table of Contents
What is S Corp?
S corp is the shortened form of S Corporation – a type of business structure that serves as a corporation as well as a partnership for its owners. Like a corporation, an S corp is a separate legal entity from its owners, which means that the owners are not responsible for the company’s debts and losses, and in this way, they enjoy more leverage.
One of the key advantages of an S corp is that it allows its owners to avoid the “double taxation” that is common with traditional corporations. In a traditional corporation, the company is taxed on its profits, and then the shareholders are taxed again when they receive dividends. With an S corp, the company’s profits are only taxed once, at the individual level.
Overall, an S corp offers its owners the features of a full-fledged corporation, such as limited liability protection, while also allowing for the pass-through taxation and flexibility in profit distribution that is characteristic of a partnership. This makes it a popular choice for small businesses and startups that want to take advantage of both business structures.
What is C Corp?
C Corp is the shortened form of C Corporation – a business model that is characterized by its legal status as a separate entity from its owners. This means that the corporation itself, rather than the individual owners, is responsible for its debts and liabilities. This is known as the “corporate veil,” which protects the owners’ personal assets.
The most notable advantage of a C corp is that it allows the company’s ownership to be easily transferred or sold. In a traditional partnership or sole proprietorship, the ownership interests are tied to the individuals who own them. In a C corp, however, ownership is represented by shares of stock, which can be bought and sold freely.
One of the disadvantages of a C corp is that it is subject to “double taxation.” This means the company is taxed on its profits, and then the shareholders are taxed again when they receive dividends. This can be a significant disadvantage, especially for small businesses, as it can reduce the company’s profitability and make it less attractive to investors.
Difference Between S Corp and C Corp
- An S Corp is not subjected to corporate income tax, whereas this benefit is missing in the C Corporation model.
- An S Corp passes profits and losses to the shareholders and taxes them on the individual level, whereas in C Corp, they are taxed at the corporate level.
- An S Corp’s ownership cannot be easily transferred or sold, whereas the ownership of C corps can be bought and sold freely.
- An S Corp is confined to incorporating only one hundred shareholders, whereas C Corp is not limited in this regard.
- An S Corp is not allowed to issue different classes of stock, while a C corporation can issue different types of stock with different rights and privileges.
Comparison Between S Corp and C Corp
|Parameters of Comparison||S Corp||C Corp|
|Taxation||Not Subjected to Corporate Tax||Subjected to Corporate Tax|
|Imposition Standard||Individual Level||Corporate Level|
|Transferability||Not Easily Transferable||Easily Transferable|
|Number of Shareholders||One Hundred Only||Unlimited|
|Controllability of Stock||Not Allowed to Issue Stock||Can Issue Types of Stock|