Shall I choose S Corporation or C Corporation?” Not many of them are aware that you cannot form S Corporation; you can only form C Corporation. S Corporation is just a tax election i.e. you can only elect whether you want your organization to be taxed as a C Corporation or as an S Corporation. You need to have your organization structure and other compliances as per your tax election.
What is the primary difference between S Corporation and C Corporation?
S Corporation – The profits are not taxed at the organization level. Rather, taxes are transferred to individual shareholders of the corporation. Hence, there is only single taxation for organization earnings.
C Corporation – It is a traditional corporation where not only the organization profits are taxed, but the dividends to shareholders are also taxed. Hence, there is double taxation under C Corporation.
Why are all the corporations not S Corporations then?
There are certain restrictions that corporations have to follow to be considered for S Corporation. A few important ones are as mentioned below:
The shareholders must be primarily individuals that are the US citizens and green card holders. There can be a maximum of 100 shareholders in an S Corporation.
If shareholders have varied financial interests then that corporation can no longer be S Corporation. Eg: unequal rights to profit share, issue of preferred stocks, shareholding by venture capital, etc.
Those organizations that are not working as per the limits mentioned above, cannot be considered for S Corporation.
To seek professional advice for consideration of S Corporation vs C Corporation for your business, reach out to NileCPA. We are professional in our approach, and have the required capability and experience to help you with the right guidance to choose the correct corporation type.