Frequently Asked Questions

What is the difference between an S corporation and a C corporation?

The difference between an S corporation and a C corporation lies primarily in their tax structures and ownership restrictions. A C corporation is the traditional form of corporation, allowing for an unlimited number of shareholders, making it ideal for businesses planning on growing and seeking more investors. C corporations offer flexible stock options and profit sharing structures, and can carry losses or profits into following years, reducing tax burdens and keeping earnings in the business. However, C corporations face "double taxation" - the corporation is taxed and shareholders are also taxed when they receive dividends. On the other hand, an S corporation is an entity that can avoid this double taxation. The business profits and losses "pass through" the entity and go directly to the shareholders, meaning the corporation itself does not pay any taxes. Shareholders instead report corporate profits on their own tax returns. However, S corporations have certain requirements to be met and any shareholders who are also employees must pay a self-employment tax on the salary they take from the corporation.