5 Key differences between S and C Corporation 

Introduction

A C Corporation is the default designation given to a newly formed company. On the other hand, a C corporation may choose to convert into a S Corporation at anytime if it receives the consent of all of its shareholders to file for S status. This blog helps you with the difference between S and C Corporation, Advantages of S Corporation in the USA, and Advantages of C Corporation in the USA .

Before going through the differences between S corp and C Corporation, Let’s have some basic and useful insights on both of the business entity.

S Corporation

An S-corporation, often known as an S-corp, is a legal entity recognised by the Internal Revenue Service under Sub-chapter S of the Internal Revenue Code. It combines the protection of an LLC (Limited Liability Company) with the corporate-level structure of a C-corp, and is occasionally referred to as a “small business company.”

The IRS offers specific tax benefits to a company with S-corp classification. The corporation does not pay federal income tax; instead, the owners of the company receive a portion of the corporation’s profits, which they disclose on their income tax forms. The corporate income of a company having S-corporation status is not subject to double taxes. Additionally, an S-corporation offers its owners less liability.

Advantages of S Corporation in the USA  

• Limited liability protection is provided to company executives, directors, shareholders, and workers.
• Elimination of double taxation on income.
• Even if the owner departs or dies, the company continues to operate.
• Tax filing is only required once a year.

C Corporation

A C corporation (or C-corp) is a legal company in which the owners, or shareholders, pay their own taxes. Profits earned by a company are taxed at both the corporate and individual levels, resulting in a scenario of double taxation.

A C corporation differs from other business structures such as an S corporation or a Limited Liability Company (LLC) in that it is obligated to pay both federal and state taxes. While alternative arrangements merely require shareholders to pay taxes on any profits they get, C Corporation maybe subject to double taxation because profits must be paid by both the corporation and the owners.

Advantages of C Corporation in the USA  

• Directors, officials, investors, and workers are all subject to limited liability.
• Even if the company’s owner leaves, it will continue to exist perpetually.
• Credibility has improved – Gain respect from lenders and suppliers.
• No Limit on Shareholders – In C Corporation there is no limit on the number of shareholders.
• Tax Advantage – Take advantage of company expenses that are tax-deductible.

What is the difference between S and C Corporation?

Winding Up

The key difference between a S and C corporation is that a S corporation lacks flexibility while a C corporation does. Both the business entity that is S Corporation and C Corporation have its own advantages and disadvantages due to which it is better for an entrepreneur to acquire knowledge and technical assistance before selecting anyone of the business structure for there business.