A corporation is a legal structure that exists separately from the owners of that business. In choosing a corporate form, you should consider the advantages and disadvantages of the two primary types of corporations, C-Corporations and S-Corporations.
In addition to the benefits listed above, a C-Corp enables the business to raise significant amounts of capital by selling shares of stock to an unlimited number of shareholders. By contrast, an S-Corp is restricted to having no more than 100 shareholders. Further, C-Corps can have non-US residents as shareholders and can issue multiple classes of stock, whereas S-Corps cannot.
Apart from these stock-related benefits, C-Corps may be used flexibly with other business forms. For example, unlike S-Corps, C-Corps can be owned by other C-Corps, as well as S-Corps, LLCs, partnerships, and certain trusts.
If you are considering establishing a S-Corp for your business, it is important to note that it is almost always better for form an LLC with a Subchapter S Election. This is because both forms of entity are taxes and the same, yet an LLC is less expensive to establish and there is no ongoing requirement to have annual shareholder meetings, issues shares, etc.
One of the key features that distinguishes C-Corps from S-Corps is that, unlike S-Corps, C-Corps are separately taxable entities. C-Corps file a corporate tax return reporting profits or losses, and must pay taxes at the corporate level on any profits. The C-Corp is also subject to more formalities (such as annual reports, minutes and meetings) in order to maintain corporate status.
The considerations involved in choosing a corporate form are often quite complex, and the paperwork involved can be daunting. The attorneys at Elliott & Davis are committed to offering you customized service, clear communication, and peace of mind as we guide you through the process of forming your corporation.