What’s The Difference Between An S-Corp VS C-Corp?

Choosing between an S corporation and a C corporation can affect everything from how your business is taxed to how easily you can raise capital.

This guide compares S corporations and C corporations, explains their key differences, and helps you determine which business structure is right for your company.

What Is A C Corporation?

A C corporation (C corp) is the default tax status for a corporation. It is a separate legal entity that protects its owners from personal liability and can issue multiple classes of stock with no limit on the number or type of shareholders.

What Is An S-Corporation?

An S corporation (S corp) is a corporation that elects pass-through taxation with the IRS. Instead of paying corporate income tax, profits and losses pass through to shareholders and are generally reported on their individual tax returns.

To qualify, an S corporation must meet IRS eligibility requirements, including limits on the number and type of shareholders.

What’s The Difference Between S Corp  & C Corp?

S corporations and C corporations share many characteristics, including limited liability protection and a formal corporate structure. The biggest differences are how they’re taxed, ownership restrictions, and their ability to raise capital.

Here’s a quick comparison:

Taxation

• C corporation: Corporate profits are generally taxed at the corporate level. Shareholders may also pay taxes on dividends they receive, resulting in what’s commonly referred to as “double taxation.”
• S corporation: Profits and losses generally pass through to shareholders, who report them on their individual tax returns. The corporation itself typically doesn’t pay federal income tax.

The right tax structure depends on your business’s profits, growth plans, and ownership structure, so it’s worth discussing your options with a tax professional.

 Ownership & Investment

• C corporation: Can have an unlimited number of shareholders, multiple classes of stock, and shareholders who are individuals, businesses, or foreign investors.
• S corporation: Is generally limited to 100 shareholders, can issue only one class of stock, and shareholders must generally be U.S. citizens or qualifying U.S. residents.

These restrictions make C corporations the preferred choice for businesses planning to raise venture capital or attract outside investors.

Which Is Right For Your Business?

The right choice depends on your business’s growth plans, ownership structure, and tax situation. In general:

Choose A C Corporation If…

Choose An S Corporation if…

S-Corp VS C-Corp Next Steps

Choosing between an S corporation and a C corporation comes down to your business’s tax strategy, ownership structure, and long-term growth plans. Before making a decision, consult a tax professional or attorney to determine which option best fits your business.

Register Your Business

If you decide to incorporate, you’ll need to register your business with your state by filing articles of incorporation and paying the required filing fees.

By default, corporations are taxed as C corporations. If your business qualifies and you want S corporation tax treatment, you’ll also need to file IRS Form 2553 after incorporating.

Learn More About Business Structures

Still deciding whether incorporation is right for your business? Explore our guide to business structures to compare corporations, LLCs, sole proprietorships, partnerships, and other business entities.