Difference Between C Corporations & S Corporations!
C Corporations or C-Corp is a type of corporation in United States that confirms with the IRS requirements to be taxed according to the Subchapter C of the internal revenue code. Once the corporation is created, it becomes its own entity with an unlimited life span, provided it pays its yearly filing fee without fail. Most of the major companies that exist in US are incorporated under C Corporation.
To form a C Corporation, one has to
* Choose a suitable name for the business in agreement with the existing state’s corporation rules.
* File all formal paperwork “ the articles of incorporation – with the requisite fee.
* Create the corporate bylaws that govern the functioning of the corporation.
* Appoint the initial directors and hold the first director board meeting.
* Issue stock certificates to the shareholders.
* And finally, obtain all license/permits required to run the business.
Failure to comply with any of these factors could lead to legal tangles.
S Corporation or S-Corp, on the other hand, is basically a C Corporation, but that files IRS form 2553 (also known as “Election by a Small Business Corporation” or “Sub Chapter S Election”) and elects a special tax status with IRS. As far as the IRS form filing date is concerned, it must be filed within 75 days of incorporation in order to be considered as an S-Corp for taxing related purposes.
In order to qualify for S-Corp, these conditions have to be met.
* It must be an eligible entity such as a partnership, a limited liability company (single member or multiple member), or a domestic corporation.
* Share holders must not be more than 75 numbers, all of whom American citizens or residents.
* Should have only one class of stock.
* And, the profits and losses, as it comes, must be proportionately allocated to the share holders based on their interests in the game.
If to analyze both the corporations closely, both are similar in two aspects. One, both are created by state filing – done the same way – and both providing the same limited liability cover, leaving its owners not personally responsible for any losses and liabilities incurred in the business. Secondly, both the corporations have to go through the near same formalities; annual meetings must be held “ both for the shareholders and directors “ the minutes of which has to be preserved in the corporation records.
The differences exists in taxation “S Corp is a pass through tax existence while C Corp is a separately taxed entity “ ownership (S Corp has restrictions while C Corp does not have similar limitations) “ and the fact that S Corp must have timely elections of S Corp status. Further, C Corp can have an unlimited number of shareholders “ including foreign shareholders – while S Corp cannot.