When you first start your business, you have to make the decision as to what type of company you’re choosing to form. There are a huge number of options, such as: corporation, LLC, partnership, LP, LLP, and the list goes on. If you’re not confused already, within a corporation, there are different types and stipulations as well, such as an S corporation or a C corp. These types of corporations vary from state to state and can be completely overwhelming to understand. For a bit of clarification, we’ll discuss the difference between an S corporation and a C corp in this blog. Of course, when you start a business, you’re going to need an experienced business attorney to help you make the right decisions for the growth of your corporation. If you’re searching for a business attorney in the Springfield area, contact The Law Office of Brian Loomis. Dedicated and experience, Brian will offer professional and smart advice to you and ensure that you’re conducting your business professionally and legally. Call now for an appointment!
S and C Corporations 101
When you first apply to incorporate a business in your state, the automatic default of every new corporation is a C corporation. It can only make the change from a C corporation to an S corporation when all of the shareholders, owners, and partners vote unanimously to consent to file for S status with the IRS. A C corporation can file at any time for an S corporation status after it becomes a corporation.
In all honesty, an S and C corporation are actually quite similar and really comes down to it being a different status and the way that taxes and freedom of ownership are dealt with and handled. When it’s all boiled down, they’re both corporations.
The Difference Between Taxation Between an S and C Corporation
If your business partners wish to file for S corporation status, there is a different way of taxation for both types.
C Corporation: This type is treated as separate taxable entity by the IRS. The corporation is taxed at the corporate level, and then again at the personal income tax level, which all the shareholders or owners pay. This is what a C corporation is known in the business world as a “double taxation” corporation.
S Corporation: Both the income and losses for a company are divided between the partners or owners and then funneled through their personal income taxes. An S corporation is not taxed at a corporate level at all, but only at the income level of all the owners, partners, or shareholders involved.
Benefits of S and C Corporations
Obviously, an S corporation has more benefits than a C corporation, which is why young business are so quick to file for S corporation status. This saves owners and partners money, and can keep a struggling business from falling apart too soon. An S corporation also has less taxable gains than its expensive C corporation. While the stipulations vary from state to state, filing for S corporation status is an excellent business move and can help your small company to grow quickly.
How to File for an S Corporation Status
Depending on your state, articles of incorporation are usually filed with the Secretary of State’s office and a separate tax form is drawn up to be filed with both federal and state taxation authorities. You can choose to go from an S corporation to C status at any time, but you must wait five years to refile.
For more details and stipulations of your state’s individual S corporation filing rules, it’s best to contact a business attorney with experience in business dealings for further help. Trying to make all of these decisions yourself can be tricky and extremely difficult. Make sure you have a trusted lawyer by your side when you’re making important decisions and changes to your business so that no mistakes are made and your business will be able to grow and thrive.
Filing for a C corporation or S corporation status can be difficult and scary at times. Don’t make any more business decisions without a helpful and experienced business attorney close by. Serving the Kansas City area for years and offering excellent business knowledge, Brian Loomis will be able to give you the right advice so you can watch your company succeed. Contact him today for more information!