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The benefits of setting up an S versus a C corporation

On Behalf of | Mar 30, 2018 | Business Organizations |

Once you become committed to setting up a business, choosing between the many different incorporation options can be difficult to do. A standard C corporation and an S corporation each carry with them different advantages and disadvantages.

When it comes to ownership of an S corporation, only those who are either resident aliens or U.S. citizens are allowed to own them.

While with a C corporation, multiple different limited liability companies, foreign entities, partnerships and other incorporated entities may be listed as the company’s owners, businesses aren’t allowed to maintain ownership over an S corporation. The latter type of corporation cannot have any more than 100 shareholders who also serve as company owners either. In contrast, a C corporation can have an infinite number of them.

As far as taxes are concerned, an S corporation’s taxes are passed though to the owners of the company. They therefore, must report any profits and losses they make when filing their own personal income taxes instead of on a business return. In contrast, C corporations are required to file corporate taxes with the Internal Revenue Service (IRS)and also report any company dividends on their personal one.

When filing taxes, C corporations are entitled to take a deduction for such benefits such as health insurance or disability payments they make.

Shareholders working for C corporations are not taxed on these benefits received provided that they offer the same to at least 70 percent of their staff. In contrast, if a shareholder in an S corporation maintains ownership of at least 2 percent of the company’s interests, then no deductions for such benefits can be taken.

The final difference between S and C corporations is that the former can only make an offering of one type of stock. The latter can offer various classes of it. Because a C corporation can offer different classes of stock, it allows them to assign different voting powers to different individuals, depending on the value of the stock held.

C corporations are also the only one of the two authorized to operate both domestically and globally as well.

If you’re considering setting up a corporation, then a St. George attorney can advise you of the benefits of selecting one type versus another.