The Difference Between an S Corp and C Corp
The Difference Between an S Corp and C Corp
S Corp and C Corp - do you know what's the difference between the two?
As the owner of a corporation, you will enjoy benefits such as a share of the profits. This profit is normally shared out in the form of stock dividends. On the other hand, you will also be liable for the debts of the corporation in most cases. There are two main types of corporations that you may form: the C Corporation and the S Corporation.
A C Corporation can be converted into an S Corporation through a process known as an "election". Generally speaking, business owners will not be liable for corporate debt incurred in a C Corporation. However, if an entrepreneur has personal debt, they will remain liable in this respect. Normal C Corporations are taxed twice. This entails having to pay income taxes on profits as a business, and thereafter sharing out the profits to the business owners who are also required to pay income tax. On the other hand, if you own an S Corporation, you will only be taxed once as an individual who needs to pay income tax on income received from the business, and not as a business because the S Corporation is not required to pay taxes.
There are some advantages that an S Corporation enjoys over a C Corporation. For one, as a business owner of an S Corporation you will generally pay less in taxes. This is especially useful for the small businesses which are essentially business partnerships that feature few individuals involved in the running of the business. As a result, the operating costs of the S Corporation are less than those of the C Corporation, thus allowing the business owners to enjoy a direct inflow of profits.
As such, owners of an S Corporation will see the profits flow to them automatically. The only downside is that along with the profits, the debts will also automatically flow to the owners. What this means is that in the event that your business is operating at a loss, as a business owner, you might find yourself incurring personal liability for the debts of your business. This lifts the corporate veil and confers S Corporation owners with both tax liability and legal liability. On the other hand, if you own a C Corporation, your small business will get to retain as much of the profits as you like.
Notable Differences
Income Tax - The main difference between a C Corporation and an S Corporation is the means by which the small business owner will be required to meet their tax obligations. While a C Corporation is required to pay income tax, an S Corporation is not.
Individual Tax Liability - As the owner of an S Corporation you are liable for meeting your individual tax obligations. However, this is not the case with the C Corporation as the business owners may or may not have individual tax liability.
Individual Debt Liability - When it comes to individual debt liability, C Corporation owners are not liable unlike the S Corporation owners who are liable.
Shareholders & Stock - In a C Corporation, there are no limits on shareholders, or on the stock. This differs from the S Corporation which places limits on the shareholders and the stock of the business.
As the owner of a corporation, you will enjoy benefits such as a share of the profits. This profit is normally shared out in the form of stock dividends. On the other hand, you will also be liable for the debts of the corporation in most cases. There are two main types of corporations that you may form: the C Corporation and the S Corporation.
A C Corporation can be converted into an S Corporation through a process known as an "election". Generally speaking, business owners will not be liable for corporate debt incurred in a C Corporation. However, if an entrepreneur has personal debt, they will remain liable in this respect. Normal C Corporations are taxed twice. This entails having to pay income taxes on profits as a business, and thereafter sharing out the profits to the business owners who are also required to pay income tax. On the other hand, if you own an S Corporation, you will only be taxed once as an individual who needs to pay income tax on income received from the business, and not as a business because the S Corporation is not required to pay taxes.
There are some advantages that an S Corporation enjoys over a C Corporation. For one, as a business owner of an S Corporation you will generally pay less in taxes. This is especially useful for the small businesses which are essentially business partnerships that feature few individuals involved in the running of the business. As a result, the operating costs of the S Corporation are less than those of the C Corporation, thus allowing the business owners to enjoy a direct inflow of profits.
As such, owners of an S Corporation will see the profits flow to them automatically. The only downside is that along with the profits, the debts will also automatically flow to the owners. What this means is that in the event that your business is operating at a loss, as a business owner, you might find yourself incurring personal liability for the debts of your business. This lifts the corporate veil and confers S Corporation owners with both tax liability and legal liability. On the other hand, if you own a C Corporation, your small business will get to retain as much of the profits as you like.
Notable Differences
Income Tax - The main difference between a C Corporation and an S Corporation is the means by which the small business owner will be required to meet their tax obligations. While a C Corporation is required to pay income tax, an S Corporation is not.
Individual Tax Liability - As the owner of an S Corporation you are liable for meeting your individual tax obligations. However, this is not the case with the C Corporation as the business owners may or may not have individual tax liability.
Individual Debt Liability - When it comes to individual debt liability, C Corporation owners are not liable unlike the S Corporation owners who are liable.
Shareholders & Stock - In a C Corporation, there are no limits on shareholders, or on the stock. This differs from the S Corporation which places limits on the shareholders and the stock of the business.
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