Differences Between S Corp and C Corp Corporations

businessman signing document

There are many people in Tennessee who have a great idea or know they could do what they are currently doing for someone else for themselves. However, knowing this and taking the steps to make it a reality are two different things. There are two aspects to any business, there is the actual service or product that the company provides and then there is the administrative side such as the accounting, ensuring taxes are paid correctly, payroll, and many other necessary aspects to ensure the company runs smoothly.

The administrative side of the business starts at the very beginning with the business formation. People who want to start a business need to set up the business with the right legal structure. There are different types of structure people can use, but one of the most common ways to start a business is to have it incorporated. Corporations are separate legal entities which have shareholders and those shareholders collectively are the owners of the company.

However, there are also different types of corporations. These are commonly referred to as S corps and C corps. The S and the C simply refer to the tax filings that are required for each one. While both offer protections from liability to the officers and shareholders of the company, the difference comes in how each one is taxed.

C corps are subject to corporate taxes and then the owners and shareholders are taxed individually on the income they derive from the corporations. S corps are not subject to the corporate tax. They are considered pass through entities meaning the owners are taxed as individuals only for the income the company earns minus the appropriate deductions. However, S corps are limited in size and have other qualifications in order to receive this benefit.

Many people start businesses in Tennessee. While being one’s own boss can be rewarding, it is important that the business is set up correctly to help ensure the success of the company. Experienced attorneys understand the various business structures available to businesses and may be a useful resource.

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