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How S and C corporations differ

When businesses are formed in Florida, owners must make many critical decisions up front. One of these is the type of business structure that will be utilized. This may include a sole proprietorship, a limited partnership, a limited liability company or a corporation. Many companies have leveraged the corporation for its ability to guard owners against personal liability. If this is the agreed-upon path, the next decision should be whether or not a C-corp or Sub-S corporation is the best option.

According to Forbes, by default all corporations are created as C-corps unless a special application for an S-corp status is made. The S-corp is generally recognized as a small business corporation model. It limits shareholders to a maximum of 100 with the added stipulation that most shareholders be individuals. American citizenship or legal resident status is also required. Aside from these things, taxes are the big area of differences between the two types of corporations.

Both corporation models will see shareholders pay income tax on all distributions. In addition, a C-corporation must also file and pay its own income tax. An S-corporation does not do this. Fox Business notes that for this reason, C-corporations will file estimated tax payments but S-corps will not. S-corporations can apply losses to income so that shareholders may have lower tax burdens.

Other differences include the ability for owners in an S-corp to receive money from the company’s profits so long as their wages are considered reasonable in the market. C-corp owners cannot do this. On the other hand, owners of a C-corporation can enjoy additional benefits related to disability or life insurance policies.

 

 

 

 

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