The profits/losses of the business are instead “passed-through” to the business and reported on the owners’ personal tax returns. They file an informational federal return (Form 1120S), but no income tax is paid at the corporate level. S corporations: S corps are pass-through taxation entities. Corporate income tax is paid first at the corporate level and again at the individual level on dividends. They also face the possibility of double taxation if corporate income is distributed to business owners as dividends, which are considered personal taxable income. They file a corporate tax return (Form 1120) and pay taxes at the corporate level. C corporations, the decision usually comes down to how they want the corporation to be treated for federal income tax purposes.Ĭ corporations: C corps are separately taxable entities. C corporation: the differencesįor small business owners evaluating S corporations vs. All corporations are required to follow the internal and external corporate formalities and obligations, such as adopting bylaws, issuing stock, holding shareholder and director meetings, maintaining a registered agent and registered office, filing annual reports, and paying annual fees. The board elects the officers to manage daily business affairs.Ĭorporate formalities: The state corporation laws make no distinction between C corporations and S corporations when it comes to compliance responsibilities. The board oversees and directs corporation affairs and decision-making but is not responsible for day-to-day operations. The shareholders elect the board of directors. Shareholders are the owners of the corporation, but it is the corporation that owns the business.
Structure: S corps and C corps have shareholders, directors and officers. These documents, typically called the Articles of Incorporation or Certificate of Incorporation, are the same regardless of whether you choose to be taxed as an S corporation or C corporation. Separate legal entities: Corporations (C corps and S corps) are separate legal entities created by a state filing.įiling documents: Formation documents must be filed with the state. This is true whether it is taxed as a C corporation or an S corporation. Limited liability protection: Corporations offer limited liability protection, so shareholders (owners) are typically not personally responsible for business debts and liabilities. Here are some of the qualities shared by both C corporations and S corporations: To elect S corporation status when forming a corporation, Form 2553 must be filed with the IRS and all S corporation guidelines met. C corporations are taxed under Subchapter C while S corporations are taxed under Subchapter S.
#S CORPORATIONS COMPANUES IN INOTED STATES CODE#
The S corporation is a corporation that has elected a special tax status with the IRS and therefore has some tax advantages.īoth business structures get their names from the parts of the Internal Revenue Code that they are taxed under. The C corporation is the standard (or default) corporation under IRS rules.
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