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    Home»News»S-Corporation vs C-Corporation: What’s the Difference?
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    S-Corporation vs C-Corporation: What’s the Difference?

    GPostingBy GPostingFebruary 17, 2022Updated:July 2, 2022No Comments5 Mins Read
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    When choosing between C-corporation and S-corporation business structures, it is important to understand each legal entity and how they differ.

    What is a C Corporation?

    A-C corporation or C corporation is a legal business entity owned by shareholders. These shareholders elect the board, which then selects the management team. In This guide you will learn C Corp and S Corp Differences. Large corporations that issue stock through the New York Stock Exchange (NYSE) and Nasdaq are C corporations, but private small businesses can also be C corporations.

    The Internal Revenue Service (IRS) taxes a C-corp’s business income, which means its owners must also pay personal income tax on money earned from stock dividends. A business can avoid double taxation by forming a limited liability company (LLC) or seeking S corporation status, but it will be subject to other restrictions, such as the number of shareholders it can have. A-C corporation also offers limited liability protection to its owners. If the company incurs debt or faces lawsuits, business owners are not personally liable and their personal assets are not at risk. Lenders or litigants can go after the business itself, not its individual owners.

    Difference between C Corp Vs S Corp

    What is an S corporation?

    S-corporation or S-corp is an entity designated under Subchapter S of the Internal Revenue Code of the Internal Revenue Service. Sometimes referred to as a “small business,” it combines LLC protection with C-corp’s corporate-level status.

    The IRS offers certain tax incentives to companies with S-corp status. Corporations do not pay federal income tax. Instead, the profit is passed on to the employer, who reports on the final income tax return. Companies with S-corporate status can avoid double taxation of corporate income. S-corporation also gives its owner limited liability.

    How to form a C-Corporation

    If your goal is to attract a large number of investors, have an international partner, or engage in overseas sales, Corporate C is the right entity type for your business.

    Choose a business name. Your C-corp will be a legal entity and must have a legal name registered with the government. Some companies have one legal name but conduct business under another. This is called DBA, which stands for “doing business.”

    File the articles of incorporation. To establish your business, you must file articles of incorporation with your state’s secretary of state. An application fee is expected to be paid. After a successful application, the state government will send you a certificate of incorporation.

    Obtain an employer identification number and bank account. The business will need an Employer ID Number (EIN) from the IRS. It also requires its own business bank account.

    Develop operating agreements. The operating agreement of the business sets out the laws and articles of association at the shareholder level. It names ownership shares, can limit the number of shareholders and sets rules for financial distribution. Appoint a registered agent for the business. A-C corporation must have a registered agent who accepts legal and tax documents on behalf of the corporation.

    Name aboard. A-C corporation must have a board of directors elected by the corporate shareholders. The board of directors must meet quarterly and provide minutes of the meeting to all owners.

    Issue stock certificates. C-corp owners are known as shareholders, and they are expected to receive stock certificates indicating their ownership of the company.

    Apply for licenses and permits if necessary. Some C corporations operate businesses that are regulated by state and local agencies. Obtain proper permits and licenses before starting your business.

    How to Form an S Corporation

    Small business owners should consider numerous filing requirements before choosing S corporation status. Choose a business name. Your S-corp will be a legal entity and must have a legal name registered with the government. Some companies have one legal name but conduct business under another. This is called DBA, which stands for “doing business.”

    Organize your business as an LLC or C-corp. To select the status of an S corporation, you must start your business as one of these two corporations. Submit the Articles of State to your State Secretary of State to establish your business. Obtain an employer identification number and a bank account. Your business requires an Employer Identification Number (EIN) from the IRS. You also need your own business bank account. Develop operating agreements. The operating agreement of the business sets out the laws and articles of association at the shareholder level. It names ownership shares, sets limits on the number of shareholders, and sets rules for financial distribution.

    Appoint a registered agent for the business. S-corporation must have a registered agent to accept legal and tax documents on behalf of the company. If you are the sole proprietor of your business, you will naturally become the registered agent of your S-corp. Confirm your eligibility. To qualify for S-corp tax status, you must operate a U.S. business owned by U.S. citizens, have no more than 100 total shareholders, have no institutional investor ownership, not be a bank or insurance company, and not be an international salesperson company.

    Name aboard. The S-corporation must have a board of directors elected by the corporate shareholders. The board of directors must hold at least one annual meeting and provide minutes of the meeting to all owners.

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