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“C” vs. “S.” To the layman, it sounds like a comparison between two new smartphones, but in business, it usually refers to the two major categories of corporations: C-corporations and S-corporations. In this week’s blog post, Phoenix attorney Mark Briggs explains the basics of one of these corporate structures.
So what exactly is a C-corporation?
First, a bit of an overview: As I have detailed in prior blog posts, there are a variety of business structures available to aspiring entrepreneurs, the four most common of which are sole proprietorships, partnerships, limited liability companies, and corporations.
The last of these structures—“corporations”—is a term you probably hear pretty often when it comes to large companies. Ultimately, though, a corporation is any separate legal entity owned by shareholders. It can service a small business just as well as it does a multinational, just so long as a business meets the criteria of a corporation.
Now, as for the difference between a C-corporation and an S-corporation—well, ultimately, it is entirely tax-related. As Forbes puts it, “Income from a C corporation is taxed twice. The corporation pays tax on its net income. Then, shareholders also pay tax on distributions. Income from an S corporation is taxed once at the shareholder level.” To put it another way, when it comes to federal income taxes, C-corporation are recognized as separate taxpaying entities from their shareholders. So any income from C-corporations are basically taxed twice—with corporate taxes, as well as individual taxes on dividends. C-corporations also maintain no limits on the number of allowable shareholders, and unlike S-corporations, there are no stipulations on whether the shareholders are foreign or domestic.
In general, all corporations are C-corporations by default. In other words, unless you specifically file for S-status, your corporation is a C-corporation. However, if you are starting a small business, and choose to do so as a corporation, I would recommend filing that paperwork.
Do you, or have you ever, run a C-corporation? What was your experience like? Feel free to share in the comment section.