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.
Learn more about the tax benefits of an S-Corporation (over a C-Corporation) and the 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.
Founders Legal’s Business and Corporate Practice group is dedicated to assisting businesses in understanding the distinctions between C-Corporations and S-Corporations, including their formation process, tax implications, and specific restrictions. With a professional grasp of these key differences as outlined in the U.S. Tax Code, we are equipped to guide you through the decision-making process. If you seek knowledgeable and responsive assistance in determining the best corporate structure for your business, contact us for a consultation.