S Corporation (S Corp) and C Corporation (C Corp) are two different types of business structures in the United States. The main differences between the two are:
1. Taxation: S Corps are pass-through entities, meaning the business’s income, deductions, and credits flow through to the personal tax returns of shareholders, who report this information on their individual tax returns. C Corps, on the other hand, are taxed as separate entities.
2. Ownership: S Corps are limited to 100 shareholders and can only issue one class of stock. C Corps can have unlimited shareholders and can issue multiple classes of stock.
3. Formation: Both S Corps and C Corps require the filing of articles of incorporation and the adoption of bylaws.
4. Formalities: S Corps are subject to fewer formalities and regulations compared to C Corps.
5. Double taxation: C Corps can face double taxation on their profits and the dividends they pay to shareholders. S Corps avoid double taxation.
6. Flexibility: C Corps offer more flexibility in terms of ownership structure and raising capital.
7. Management: C Corps are managed by a board of directors, while S Corps can be managed by shareholders or a board of directors.