What Are the Similarities and Differences Between S and C Corps?
March 24, 2014
Selecting the type of entity for your business is one of the more important decisions you will make. A business formation lawyer serving the Atlanta area can help you decide on the business entity that is most appropriate and advantageous for your company.
An S corporation derives its name from Subchapter S of Chapter 1 of the Internal Revenue Code. Similarities between S corporations and C corporations are that they establish separate legal entities for the owners. And as separate legal entities, they both provide limited liability protection, meaning that in most cases owners are not responsible for the company's debts and liabilities. Both types of corporations require you to file Articles of Incorporation with the State of Georgia and to adopt by-laws. As corporations, both have corporate structures consisting of a Board of Directors, officers and shareholders. Boards of Directors handle the company's major decision-making and elect officers to oversee daily operations. C corps and S corps must comply with legal formalities such as issuing stock, holding director and shareholder meetings, paying annual fees and filing annual reports. The main differences are that C corps file corporate returns and are subject to double taxation. The company pays taxes at the corporate level, and individuals pay income taxes from salaries drawn or dividends received. By comparison, S corps are pass-through entities and the company pays no corporate taxes. Only owners and shareholders pay taxes through personal returns.