By Mark Oldberg: October 10, 2017: Video

 

 

 

Ok well first off let’s just make it clear that both are Corporations, with all the requirements and liability protections that come with it. The S or C is really just a tax designation. One misconception is that the S stands for small. This is not true. They received the S and the C designations because those are the subchapters of the tax code that govern these entities. So when you hear S-Corp it really means Subchapter S Corporation.

So the differences. Well the liability protection, structure, state filings, and corporate filings are all the same. The taxation is different. While C-corps are separate taxable entities, where S-corps are pass through entities. C-corps are subject to double taxation because they are taxed at the corporate level and then again when distributed to the owners. S-corp profits are only taxed once because all of the profits “pass-through” onto the shareholder’s personal tax return. This can save a lot of money in taxes.

Because of this potential advantage, the government limited who can be a shareholder of an S-corp. In an S-corp shareholders must be US Citizens or residents, shareholders cannot be another business like a corporation or LLC, and S-corps can only have one class of stock (some c-corps have preferred shares that get paid first). S-corps are also limited to only 100 shareholders.

To become an S-corp, you file to become a corporation and then timely file form 2553 with the IRS. As of this writing there are only 5 states that require additional filing at the state level, Arkansas, NJ, NY, Ohio, Wisconsin

 

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• Taxes
• Forming a Business
• Choosing a Business Entity