Both C-Corporations and S-Corporations are, at their core, corporations that are formed at the state level. The formation process, structure, and governance are usually identical for both. The two big differences are:
- The way each entity is taxed at the Federal level;
- The restrictions that are placed on the types of equity S-Corporations can issue and the types of shareholders they can have.
Tax law is what sets the differences between C-Corporations and S-Corporations. In fact, the name of each comes from Subchapter ‘C’ and Subchapter ‘S’, respectively, of Chapter 1 of the U.S. Tax Code (26 USC 1).
When a corporation is formed with the state, the C-Corporation is the default. The Corporation can then file an election form with the IRS (Form 2553) to become an S-Corporation. Once accepted, your corporation becomes an S-Corporation.
Click here for more information on the tax benefits of an S-Corporation (over a C-Corporation).
Click here to find out more about restrictions that the IRS places on S-Corporation.
If you are interested in more detail related to your situation it is best to speak with an attorney.
Andrei Tsygankov is the Co-Founder and COO of SmartUp® and a partner at Founders Legal (Bekiares Eliezer LLP). As an attorney, Andrei specializes in corporate, commercial, trademark, and international business matters.
Source: Smartup Legal
