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S Corporation vs C Corporation

See Also:
S Corporation
C Corporation
Limited Liability Company (LLC)

S Corporation vs C Corporation

Although these two entities are very similar, there has always been a debate between an S corporation vs C corporation. The S corporation vs C corporation debate has been ongoing for a while. The following are some major differences that exist which may help an entity choose the proper class of corporation.

Double Taxation

In a C corporation, the entity is forced to pay Federal Income Taxes at the entity level and again at the individual level when it distributes dividends to its shareholders. This double taxation is a huge disadvantage to the C corporation. It acts as a flow through entity much like a partnership. Each individual is only taxed on their earnings from the s corp at the individual level on schedule E of the IRS form 1040.

# of Shareholders

An S corporation can only have 100 shareholders total. This is good if it is a smaller company. However, for larger companies, this is simply not possible because of the amount of cash flow needed to finance a larger corporation. Consider all family members within the S corporation as only one shareholder. This means that there is a way in which there could be more than 100 shareholders. It also means that S corporation holders can increase their interest in the business without losing the status of an S corp.

Forms of Stock

C corps can issue several different forms of stock to obtain financing for its operations. In comparison, an S corporation can only have one class of stock. The C corporation’s advantage is that it has the ability to issue preferred shares or other classes depending on its needs.

Type of Company

You can form S corps only after you set a company as a C corp or a Limited Liability Company (LLC). This is a disadvantage for entities that would like the S corporation status (i.e. partnerships because of the similarities between the two).

Note: This is by no means all of the S corporation and C corporation differences. However, our list includes some of the main ones that influence a company to go one way or another.


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C Corporation

See Also:
S Corporation
Limited Liability Limited Partnership (LLLP)
Cooperative (co-op)
Limited Liability Company (LLC)
Sole Proprietorship
S Corporation vs C Corporation
Conglomerate Definition

C Corporation Definition

The C Corporation definition (C-corp) is a form of business which is owned by several C-corp shareholders or holders of stock within the company. Many larger businesses adopt this model so that they can receive the large amount of financing needed to grow the company further.

C Corporation Explained

A C-corp is formed when a group puts together articles of incorporation and files these with a state. Some states carry more benefits, like Delaware, making it more appealing to set the corporation up through that state. Once articles of incorporation have been filed with the state then the C corporation receives its status as an official corporation when it gets a certificate approving the articles. The company can then issue shares to the general public after all financials are in compliance with GAAP. C corporations are the only type of entity stock exchanges list.

C corporation advantages include limited liability for management running the company. However, management is liable to answer to a Board of Directors who are responsible for ensuring that the company is acting in the best interest of shareholders. This means that a C-corp’s number one goal is to maximize shareholder wealth.

C corporation disadvantages are that the entity can receive double taxes. C-corp double taxation occurs when a company is taxed as a legal stand alone entity. Then the second tax comes if the C-corp issues dividends to its shareholders. Despite this disadvantage the C-corp is one of the most common business forms for larger companies.

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