C and S Corporations

C & S Corporations
Student’s Name
Institution’s Name
C Corporation
Most businesses seek to minimize the financial liabilities of their owner. These businesses organize themselves under a legal structure dubbed as a C corporation. This legal structure allows taxation of companies as separate entities. Subchapter C of the Internal Revenue Code harbours some rules and regulations. Due to their governance by these rules, C Corporations assume their name CITATION Jea17 l 2057 (Murray, 2017). C Corporations pay both state and federal taxes. Safeguarding of personal properties of the owners of a C corporation occurs through the limited liability protection, should the firm incur legal issues or debts that compromise its profitability. However, C Corporations may face double taxation since the owners and the business itself must pay taxes on the profits acquired. Shareholders are the critical owners of a C Corporation. These shareholders own various percentages of the company’s stock. The legal structure (C Corporation) allows an unlimited number of shareholders or investors to claim ownership of the firm CITATION Jea17 l 2057 (Murray, 2017). These investors have a crucial role in electing the board of directors that oversees the governance the business. C corporations must ensure holding of regular board meetings, in which minute recording is critical. A resident agent is crucial personnel in all C Corporations whose role is to oversee summons or petitions in courts of law in cases filed against the business.

Taxation in this kind of legal structure occurs quarterly. The link to the IRS with the information on this kind of corporation is; https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations
S Corporation
The S Corporation is defined in the in the Internal Revenue Code, under Subchapter S, thus acquiring its name. S Corporations protects shareholders from the liabilities of the business. However, income is only passed to the investors who pay taxes on it. The S Corporation also passes deductions, losses, and credits to the shareholders. As opposed to a C Corporation, an S Corporation must be domestic with a limit of one hundred approved investors. Besides, this type of corporation offers just one class of stock. Double taxation does not occur in S Corporations, and they file taxes yearly. For a successful registration as an S Corporation, one must register with IRS under Form 2553 CITATION Biz18 l 2057 (BizFilings, 2018). In a nutshell, the S Corporation is the lite version of a C corp. Some of the advantages of this type of legal structure are elimination of double taxation, yearly taxation, and continuous existence, where the business thrives even if the owner dies or leaves the investment. The link to the IRS with the information on this kind of corporation is; https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations
C Corporation vs. S Corporation
Similarities
Subchapter C of the IRS defines the C Corporation while the Subchapter S of the same defines the S Corporation. These two corps have other differences as well as similarities. For instance, the C Corp is standard while the S Corp involves a special tax status. Some of the similarities of these two corporations are; both legal structures offer limited liability protection such that the investors or shareholders are not subjected to any liabilities of the business. However, the corporate shield is prone to violation if an owner or a significant board member breaks the law by acting outside its bounds. A state filing creates both legal structures as separate entities. Both corporations file similar articles of Incorporation. Besides, both corporations have similar governance structure. For instance, both corporations have directors, officers and shareholders. In both structures, the shareholders are the owners of the business and are responsible for electing the board of directors CITATION Biz18 l 2057 (BizFilings, 2018). The board of directors oversees and directs primary affairs of the corporation. However, the board of directors does not govern the performance of the day- to –day activities of the business; instead, they appoint other officers to assume that role. In both corporations, adoption of bylaws, payment of annual fees, holding meetings for shareholders and board of director some of corporate formalities adopted in both legal structures. Also, issuance of stock is common in both corporations CITATION Jea17 l 2057 (Murray, 2017).
Differences
Although the two corporations have lots of similarities, they have some significant differences. The primary distinction between the two legal structures is taxation. Coincidentally, taxation is the most considerable aspect investors, or individuals look into before setting up or investing in a business. The C corporations, pay tax at a corporate level. Besides, they are separate taxable entities CITATION Biz18 l 2057 (BizFilings, 2018). C Corps file tax return under Form 1120. This legal structure allows issuance of dividends to the investors. Taxation occurs at the corporate level. Besides, taxation occurs at individual levels. Therefore, there arises a possibility of double taxation, which is at the organizational as well as the individual levels.
As opposed to separate taxable entities in C Corporations, taxation is pass-through in S Corps. Under this legal structure, no tax payment occurs at the corporate level; instead of S Corps file under Form the 1120S. The owners of the business under this structure are subjected to profits and losses since it observes a pass-through protocol. S Corporations allow tax payment at individual levels, thus eliminating any cases of double taxation CITATION Jea17 l 2057 (Murray, 2017).
Lastly, these two corporations depict their difference in corporate ownership. In C corporations, there is no limit on the number of shareholders who own a business. However, in S corporations, the number of shareholders should not exceed one hundred. Other than a limit on the number of shareholders the S Corps requires that the owners be American citizens or alien residents. Only individual own the S corporations can and no other corporations, LLCs trusts or any partnerships. Besides, S Corps are allowed to have just one type of stock, as opposed to the C Corps, which can have more than one class. In a nutshell, for a business start-up, C Corporations must be the most suitable due to their flexibility CITATION Biz18 l 2057 (BizFilings, 2018).
Assistive questions to the entrepreneur
How many approved shareholders do you wish to own the business? If the entrepreneur wants to incorporate more than one hundred shareholders in the company, then C Corporation is the way to go, since S Corporations limit the number of owners/ investors to 100.
How many classes of stock do you wish your business to have? If the entrepreneur wants their firm to have more than one category of stock, the company ought to be a C Corporation since it allows more than class of stock as opposed to S Corporations.
What mode of taxation do you want your business to have? If the entrepreneur wants the firm taxed only at the individual level, S Corporations is the better choice. C Corporations have a significant setback of exposing the shareholders to double taxation, both at the corporate and personal level. Therefore, regarding tax, S Corps are more convenient as compared to their C counterparts.

References
BIBLIOGRAPHY l 2057 BizFilings. (2018). Compare S Corporation vs C Corporation. Incorporating Your Business. Wolters Kluwer.
Murray, J. (2017). The Difference between a C Corporation and an S Corporation. Differences Between C Corps and S Corps Are Critical at Tax Time. The balance.