Should I start an S or C Corp?

On Behalf of | Mar 24, 2021 | Business Formation | 0 comments

A corporation is a type of business structure. You may best know this type of business as being the type that offers stocks.

There are two main types of corporations: S and C. According to Nav, each type of corporation has distinguishing features that can help you decide which one is best for your business situation.

C Corp

A C Corp’s main feature is double taxation. The government will tax the corporation on the money it earns and then tax shareholders on their returns.

C Corps also do not have ownership restrictions. You can have as many owners as you want with no special requirements on who can be an owner.

Starting a C Corp is also not difficult. You will file the default corporation paperwork with your state.

S Corp

Starting an S Corp requires filing additional paperwork. You also have to meet specific requirements and ensure you continue to meet those requirements or your corporation will become a C Corp.

Part of the requirements is having only 100 shareholders, and every shareholder must be a citizen of the US. You also cannot issue certain types of stocks.

One perk of an S Corp is that you don’t have double taxation. The government does not directly tax the corporation. It taxes only the shareholders.

Comparison

The biggest reason you might consider an S Corp over a C Corp is the taxation process. It saves money overall for your business. However, the limitations of an S Corp often are the tipping point to make people choose a C Corp. It really depends on your situation and what you want for your business now and in the future as to which type you choose.