If you’re incorporating a business online, you must decide which corporate structure works best for you company – both in terms of taxes and regulations.
Of course, deciding that requires the advice of an attorney who can review your business and see which one would work best. For a corporation, there are two types, a C corporation and a S corporation.
The main difference between the two is how they are taxed. A C corporation is the basic one, while a S corporation is simply a C corporation that has elected special tax provisions available to them under certain criteria.
C corporations and their shareholders have to contend with what’s known as “double-taxation”. The business files corporate income tax returns and pays income taxes. Shareholders do not report corporate income on their personal returns – but, they report and dividends or income they receive from the corporation, hence, double-taxation.
In a S corporation, if all shareholders agree to it, does not file income tax returns. Rather, income is “passed-through” to the shareholders and they claim a proportion of the corporation’s income relative to the proportion of ownership they have in the company. So for example, if an shareholder owns 20% of the company’s stock, they claim 20% of the income on their tax returns.
There are other minor differences between C and S corporations. For instance, a S corporation is limited to 100 shareholders and there are certain types of businesses they cannot engage in.
For a more detailed overview of the differences, visit “Differences Between C Corporations and S Corporations” in the online incorporation Knowledge Center at MaxFilings.com.
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