C-CORP vs. S-CORP

C-CORP vs. S-CORP

How to decide which structure and tax election is best for you?

Should you incorporate as a C-Corporation or an S-Corporation? To answer that question, you need a clear vision of your business goals. Operationally these entities are similar, yet they have significant differences when it comes to taxation and growth potential.

C-Corporations

C-Corporations, or “C-Corps,” are known as “default” corporations. These entities are the default designations given to corporations when businesses first file their “Articles of Incorporation,” a series of documents unique to each state.

Advantages. Some advantages include the ability to raise capital, the ability to be publicly traded, and the ability to issue multiple types of stock. C-Corps can raise a significant amount of capital because they have fewer restrictions when it comes to shareholders. These entities may have an unlimited number of shareholders and can seek financial backing globally. For these reasons, C-Corps are generally favored by larger corporations.

Disadvantages. However, there is a significant drawback when it comes to C-Corps, and that is “double taxation.” The “double taxation” of a C-Corp refers to the taxation upon the dividends paid out to shareholders individually and on the profit of the corporation itself. This drawback is typically one of the deciding factors in choosing which type of taxation is best for your entity.

S-Corporations

S-Corporations, or “S-Corps,” are different from C-Corporations in that you must explicitly elect to become an S-Corp. To be taxed as an S-Corp you must file Internal Revenue Service Form 2553, also known as “Election by a Small Business Corporation.”

Advantages.  The biggest advantage is lack of double taxation. Unlike C-Corps, an S-Corp’s profits are not taxed, only the income dispersed to the shareholders is taxed. This is the trade-off for S-Corps, in exchange for reduced size they can keep more of their profits, which is why this model is generally favored by small businesses. However, it should be noted that some states do actually “double tax” S-Corp. Those states include the District of Columbia, New Hampshire, Tennessee, and Texas.

Disadvantages. The disadvantages include the limit of a maximum of 100 shareholders, it may only issue one kind of stock, and it cannot be owned by a C-Corp or another S-Corp.

Limited Liability Company Election

Don’t be misled by the “corp” reference, an LLC can also to be taxed as either a C-Corp or S-Corp with the same advantages and disadvantages.

The question of whether to become an S-Corp or a C-Corp can be easily determined with the right guidance. Speaking with a knowledgeable Business Law firm such as Gulati Law, along with your accountant is the best way to determine which structure is best for the needs of your corporation and to set your business up for lasting success.

Gulati Law is Awarded 2019 Law Firm 500 Honoree

Gulati Law, P.L., named a 2019 Law Firm 500 Honoree for Fastest Growing Law Firms in the U.S.

Over the past 3-years, our team at Gulati Law, P.L., have been dedicated to providing excellence in customer service resulting in many happy clients. In doing so, our commitment and focus has taken us on a fabulous journey of growth – both personally and for our business.

We are pleased to announce that our law firm has been named a 2019 Law Firm 500 Honoree awarded to the Fastest Growing Law Firms in the US. Although this recognition is calculated on growth, it could not be possible without the continued operational excellence and commitment to client service exhibited by our team each and every day.

Thank you so much to our loyal clients, colleagues, family, and partners who have supported us as we have grown.

The Law Firm 500 Award is an honor for our firm to receive and a tribute to our team. Of course, we could not have achieved this truly remarkable accomplishment without our devoted team. Each in their own way has contributed to making this possible.

As we continue to grow, we encourage you to follow our progress and stay in touch!

 

About Gulati Law

Gulati Law has focused on serving their clients with more of a personal boutique style of representation. Gulati Law’s has a sophisticated mix of clients who venture in, among other things, informational technology, restaurants, media, financial services, manufacturing, retail, hospitality and lodging, and many other diverse businesses. Gulati Law’s team handles real estate closings, including commercial deals, 1031 Exchanges, and re-finances. They also assist clients with their contract preparation, small business formation’s, asset protection and set up.

For more information about our firm contact us at (407) 900-5054 or Office@GulatiLaw.com

 

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