Business is booming and you may be thinking about what steps to take next as a business owner to grow your enterprise. Perhaps you are starting to attract investors, or you desire to “go public” and open your business to shareholders. If so, it may be time to incorporate. Two common types of corporations are C-corps and S-corps.
What is a C-corp?
A C-corp is the basic form of corporation. It is an entirely independent entity. This means that it can earn a profit, be taxed sue and be sued. Owners and shareholders can leave or enter the corporation without interrupting corporate activities.
The owners and officers cannot be held personally liable for the debts and obligations of the corporation, unless the “corporate veil” is pierced. C-corps are taxed twice: once when they pay income tax on their profits and again when dividends are paid.
What is an S-corp?
S-corps are similar to C-corps, but they avoid the double taxation that C-corps face. In an S-corp, profits and certain losses go straight through to the owners’ personal income, meaning they are not taxed on a corporate level.
S-corps must file with the Internal Revenue Service to obtain S-corp status, as well as meet other criteria necessary to file as an S-corp. Note that some states do not recognize S-corps as a valid type of corporation, and will treat S-corps as C-corps.
Choose your business structure wisely
If you are looking to incorporate, you will want to explore all your options so you can choose the corporate structure that is best for you. C-corps and S-corps are only two options you may consider. Many of those looking to incorporate will first discuss their situation and goals with an attorney, so they can be advised accordingly.