Incorporating a Small Business: S corporations versus C corporations

If you've been considering incorporating your small business, you've probably been confused about the difference between S and C corporations.

The similarities between S and C corporations are as follows:

1. Both S and C corporations are both separate legal entities that offer limited liability protection. If, for example, the corporation is sued only the corporation's assets are at risk. The assets of the board members or CEO are usually safe.

2. An S Corporation is essentially a C Corporation that has a special tax status with the IRS, created by filing form 2553. The articles of incorporation that are filed with the state are same.

3. Both entities must hold annual shareholder's meetings. Meeting minutes must be kept with the corporate records. Failure to follow this procedure can result in a judge's decision to 'pierce the corporate veil' and hold the corporation's owners personally liable for any penalties or debts.

So what are the differences?

1. S and C Corporations differ greatly with regards to taxation. With S corporations any income or loss generated by the business appears on the personal tax return of the owners. This is often referred to as a "pass-through" tax entity.

2. C corporations are often referred to as separately taxable entities. As you've probably already guessed, any gains or losses do not appear on the owner's personal tax records

By now you're probably thinking, "What's the use of an S corporation if my tax statements aren't kept separate?"

The reason is this: Dividends paid to the small business owners from corporate profits may be taxed twice. The IRS can tax both the corporation and the owner.

3. S and C corporations also differ with regards to ownership limitations, some of which are as follows:

a. C Corporations can have an unlimited number of shareholders while S Corporations are restricted to no more than 100 shareholders. As a small business owner this shouldn't be much of a problem.

b. S corporations cannot have shareholders that reside outside of the United States. Practically anyone can own shares of a C corporation, regardless of where they reside.

c. Also, S Corporations ownership is largely restricted to individuals. C Corporations, other S Corporations, LLCs, partnerships and many trusts cannot own shares of an S corporation. C corporations can sell shares to individual or other legal entities.

Well there you have it. Basically S corporations offer the same liability protection without the tax separation or freedom of ownership. The restrictions placed on S corporations are hardly noticed by the bulk of small businesses with only a few owners. If you're still not sure what type of corporation to form, there's a lot more information about incorporating a small business at small-business-assistance.com

Jacob Wren operates Small Business Assistance - a resource site for entrepreneurs that offers advice on incorporating and an array of other small business topics.

---

How to Increase the Cash Flow in Your Private Practice in 30 Days

If you have a busy private practice, chances are you... Read More

Buying a Franchise

Buying a franchise is not for everyone. This guide will... Read More

Awning Cleaning Business Case Study: Entrepreneurship 101

It is most fascinating to study how entrepreneurs spot opportunity... Read More

Franchise Rule to be Revised; Why?

The FTC, Federal Trade Commission, is considering modifying the franchise... Read More

Start a Technical Writing Service

Technical writing services are employed to explain the details of... Read More

Small Business Ideas - Your Image Can Lose You Business

What image do you and your people portray to your... Read More

Private Franchising is not Real a Real Franchise

One major issue not being addressed right now in the... Read More

Small Business Owners - Form a Relationship with Your Bank Manager

It's just like a marriageTo expect a bank manager or... Read More

Contract Cleaners ? A Guide for Business Part 2

In the first part of this article I put forward... Read More

Venus Transit - and Small Business?

On June 8, 2004, the world witnessed what no one... Read More

Australian Workplace Agreements - How They Work For You

The employer / employee relations environment has been constantly evolving... Read More

How to Profit Handsomely From a Secret Business Model Virtually No Small Business is Using!

Have you been searching for the perfect home-based business? I... Read More

Cashing In Your Chips & Pastures New

No, I'm not talking about gambling or dairy cows ?... Read More

Computer Tips that Help Small Businesses Operate Profitably

When working properly, computers enable small businesses to make big... Read More

Mobile Car Wash Market Opportunities in California

The current lack of industry leaders represents an exceptional opportunity... Read More

Going Public: The Process for Small and Mid-size Companies to Go Public

It's the dream of every person who starts a business... Read More

5 Small Business Management Questions to Help Choose Marketing Programs

As small business managers, we juggle limited resources in a... Read More

Five Facts and One Motivating Factor Behind a Successful Home Business

All legitimate home business entrepreneurs insist and announce loud and... Read More

Concrete Cleaning Discussed at World of Concrete Expo 03

If you are in the pressure washing business and are... Read More

When to Say NO!

When is it a good thing to say no to... Read More

How to Effectively Design Your Business Image

In many industries, image is one of the last things... Read More

Top Ten Tips for Leveraging Conferences for Big SUCCESS!

As I am preparing for my attendance to the CoachVille's... Read More

Accounting Methods ? Cash and Accrual

When starting a business, you have to determine the method... Read More

Cleaning Service Stations with a Pressure Washer

Fuel prices these days are quite high and they take... Read More

A Business Tail: Veterinarian Foams at Mouth, Chases Tail, Learns New Tricks--Case Study

Many self employed professionals find themselves overwhelmed, frustrated, and confused... Read More

How To Accept Credit Cards

If you plan to do business online, then your website... Read More

How to Define Business Objectives

Why does a good business relationship rely on having some... Read More

Small Business - A Thing Worth Doing Is Worth Doing Badly

A thing worth doing is worth doing badly. Yes I... Read More

Its Spring - Time For A Compensation Program Tune Up

Now that winter has passed, the annual ritual of spring... Read More

Time to Sell your Restaurant? Some Advice from Restaurant Consultants, Inc.

As a specialist in getting restaurants open, it is surprising... Read More

Small Business and Over Regulation

Over regulation of small business is so intense it is... Read More

Small Home Business: Ad Copy Secrets

So it's time to invest some finances into advertising your... Read More

Overcoming Your Biggest Competitor

Before you read any further in this article, I'd like... Read More