C Corporations Versus S Corporations




When entrepreneurs consider starting a business, or when existing small business owners consider changing their business structure, one of the most common options they evaluate is the corporation. There are two different types of corporations, the C corporation and the S corporation, and which is best often depends on the goals you have for your business.

The C corporation is the standard corporation. The S corporation is a standard corporation that has elected a special tax status with the Internal Revenue Service (IRS). It gets its name because it is defined in Subchapter S of the Internal Revenue Code. In order to elect S corporation status, Form 2553 must be filed with the IRS and all S corporation guidelines met.

While the C corporation and S corporation have many similarities, they also have distinct differences.


  1. Both offer the same limited liability protection for shareholders (owners), meaning that the shareholders are typically not personally responsible for the debts and liabilities of the business.
  2. Both are separate legal entities created by a state filing. 
  3. The formation documents that are filed with the state, which are typically called the articles of incorporation or certificate of incorporation, are the same whether the business will be a C or an S corporation.
  4. Corporations have shareholders, directors and officers. Shareholders are the owners of the company and elect the board of directors. The board of directors oversees and directs the affairs of the corporation and has responsibility for major decisions, but is not responsible for the day-to-day operations of the corporation. The directors elect officers to manage the daily affairs of the business. Most states allow one person be a shareholder, director and officer of a corporation.
  5. Both are required to follow the same internal and external corporate formalities. Examples of internal formalities include adopting bylaws, issuing stock, holding initial and then annual meetings of shareholders and directors, and keeping the minutes from these meetings with the corporate records. Examples of external requirements include filing annual reports, which are required by the state, and paying the necessary annual fees.


1.    Taxation

 2.   Corporate ownership

3.   S corporation Election

Pass-through Taxation
As mentioned above, electing S corporation status with the IRS allows for pass-through taxation of the corporation’s profits. S corporations must still file corporate tax returns, but they do not pay taxes at the corporate level. The corporation’s profits are passed-through to the individual tax returns of the shareholders, and taxes are paid on those profits at the individual tax rate. If the corporation is reporting a loss, the loss is passed-through to the shareholders as well. Because S corporations do not pay taxes at the corporate level, this eliminates the potential double tax C corporations face when profits are issued as dividends to shareholders.

As you determine which business structure is the best for your business, there are both online and professional resources to assist you. We can help you compare different entities based on a number of considerations that are important to you. For advice on which structure to choose, you should contact an attorney or accountant.






You may contact one of our accounting professionals from 9:00 AM - 5:00 PM Eastern time at (301) 262-8003. You may also email your questions to admin@paysolveonline.com.







Did You Know?

Corporations provide limited liability protection to its owners. The owners are not personally responsible for the debts and liabilities of the business.

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