What is the difference between a c corp and a s corp?

On Behalf of | Feb 26, 2019 | Firm News |

Many questions come up when starting a new business and one of them is usually what business form to use. There are a variety of different business forms to be familiar with and one type is a corporation. Understanding the benefit of the corporate business form and the different corporate structures is important for business owners and entrepreneurs.

Business formation & planning is one of the first steps and biggest decisions a new business owner will make which is why it should not be made hastily. The corporate business form protects the business owner from being personally liable for the liabilities of the business. There are two primary types of corporation, including a c corp and an s corp. The primary difference between the two is how each handles taxation.

The financial protection offered by a corporation is important. It is important to note that s corporations are stricter than c corporations. C corporations pay taxes on income and the owner pays taxes on the income they receive. This is sometimes considered double taxation. A s corporation does not pay tax and instead owners report the company revenue as personal income on their taxes. There are potential advantages and disadvantages to each type of corporation and also initial filing and ongoing requirements to be familiar with.

The importance of deciding which business form is best should not be underestimated because it can have a significant impact on control of the business, taxation, liability and other concerns as well. As a result, business owners and entrepreneurs should fully understand their options so they can select which one is best for their business.