What is the Difference between an S Corp and a C Corp?

The main difference between a C Corp and an S Corp is that they are two different types of corporations with different purposes. Before we dive into why you would choose one or the other for your business, let’s start out with some definitions that will help you understand the differences and what their purpose is.

What is a Corporation?

Oxford Languages defines a corporation as “a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.” This sets a corporation apart from its owners for tax and liability purposes. If the corporation has financial or work obligations, those are treated as obligations of the corporation and not of the individuals the own or manage the corporation directly.

What is a C Corporation?

Now that we have our definition of a corporation, a C Corporation is a “separate taxpaying entity” according to the IRS. Investopedia defines it as “a business structure in which owners or shareholders are taxed separately from the entity.” Both the corporate entity and the owners or shareholders are taxed, sometimes referred to as “double taxation.” A C Corp can be helpful for businesses that may look for external investment in the future as they grow their business.

How Do You Start a C Corporation?

The easiest way to start your C Corporation is thru our site at MyCorporation! We have all the tools and customer support you need to get your C Corp up and running quickly and smoothly. Stripe has a lengthy list of steps for starting your C Corporation, but we’ve condensed them here:

  1. Select a State
  2. Choose Your Registered Agent
  3. File Your Articles of Incorporation
  4. Draft Your Corporate Bylaws
  5. Appoint Directors
  6. Issue Stock
  7. Get an EIN

What is an S Corporation?

An S Corporation, unlike a C Corporation, chooses to “pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.” (IRS) S Corporations avoid the “double taxation” of C Corporations and assess income and losses on personal tax returns.

How do you Start an S Corporation?

MyCorporation is also a great place for you to start your S Corporation! You get one-on-one phone support whenever you need it, and it all starts by filling out our quick online form. Here’s a condensed breakdown from eCommerce platform Shopify on the different steps required to start your S Corp.

  1. File Your Articles of Incorporation
  2. Issue Stock
  3. Elect Board of Directors
  4. Get an EIN
  5. Elect S Corp
  6. Create S Corp Bylaws

And as always, if you have any questions about setting up your S Corporation, our team is here to help!

Which is better? A C Corp or an S Corp?

So who wins in the battle of C corporation vs S corporation? What differences between C and S corporations make one better for your business than the other? Let’s dive in…

C Corporation Pros and Cons

It can be easier to get investors interested in your business using a C Corp. If you are looking to receive investors for your business, you will likely want the C Corp route. If you are less concerned with outside investors, you may want to consider an S Corporation. A C Corporation can have as many owners as the business would like as well as international shareholders. A C Corporation pays taxes twice, once at the corporate level through corporate taxes and then owners or shareholders of the business pay income taxes from what they receive from the business.

S Corporation Pros and Cons

Here are some additional concepts from an S Corp perspective that will help you determine who wins in your decision between an S Corp or a C Corp for your business. S Corporations are taxed only once at the owner level, which means that taxes can be simpler. It also allows for owners to take a salary from the business as opposed to being taxed on everything that a business brings in like they would be if the business were structured under an LLC. Some investor groups are not allow to invest in LLCs or S Corporations as a result of either tax law or their bylaws and internal documents.

Final Notes

Both S Corp and C Corp are tax elections that your business can choose depending on how they want to be taxed at the state and federal level. This differs from LLCs and LLPs which are legal entities for your business. When choosing whether you want your business to be taxed as an S Corp or a C Corp, consider if you want investors, what type of ownership and/or shareholder structure you want long term, and what type of taxation makes the most sense for you. If you have any questions about S Corps, C Corps, LLCs, or starting your own business, use the Chat Widget on MyCorporation.com to reach out to our support team!

Frequently Asked Questions

Is it better to be an S Corp or a C Corp?

There are pros and cons to both S Corps and C Corps. Learn the Pros and Cons of both and make a decision based on what will be best for your business long term!

Is my LLC an S Corp or a C Corp?

You can elect for your LLC to be taxed as an S Corp or a C Corp since these are tax designations rather.

Why does S-Corp status exist?

The primary purpose of S Corps is to avoid taxation at both the business and personal owner or shareholder level.

How much does it cost to form a corporation?

It can cost less than $500 to set up a corporation. Check out our article that talks about it!

Can my business transition from a C-Corp to an S-Corp?

Your business can transition from being a C-Corp to an S-Corp, but your business must have maintained C Corp status for at least 5 years before transitioning.