By carefully choosing the right corporation, a business or startup can minimize taxes and ensure that the business or startup is being financed and conducted efficiently.
When it comes to determine whether a regular C-Corporation or S-Corporation is right for your business is tricky. There are many factors that go into determining which corporation best fits your business.
A standard corporation with unlimited number of shareholders and limited liability for the owners. C corporations are individually taxable, file a corporate tax return and pay taxes at the corporate level. Double taxation is a possibility for C corporations if the company's income is distributed as income, resulting in taxation at different levels based on the number of shareholders. C corporations can also have multiple classes of stock, such as preferred and common.
A standard corporation with a special tax status, limited number of shareholders, and limited liability for the owners. S corporations are available to companies that intend on having fewer than 100 shareholders. S corporations file an informational federal return, but do not pay tax at the corporate level. Profits and losses are reported on the business owner’s individual tax returns. An S corporation has pass-through taxation (which means that you can pass business losses to your personal taxes) and is only eligible for one class of stock.
The standard is usually to file as a C corporation if you have a sizable operation. An S corporation is more appropriate if you intend on having fewer than 100 shareholders.
Here is a quick look comparison between the two:
|Taxes Paid by the C-Corp
C-Corp pays taxes for itself
Owners pay taxes for the S-Corp
|Unlimited Shareholders||Limited Number of Shareholders
S-Corp is limited to 100 shareholders
|Multiple Stock of Classes
C-Corp can issue unlimited # of classes
|Single Class of Stock
S-Corp can issue only 1 stack of stock
|Flexible Stock Options
C-Corps have freedom in issuing employee stock options
|No Stock Options
S-Corps can't give out stock options
C-Corporation is the most popular choice among startups.
So which structure is best for your business?
There is no definite answer but a business lawyer may certainly help answer that question.
By establishing the correct corporation, you may be able to protect yourself from liability or debt. Mollaei Law can help you form a corporation based on your business needs.
Are you a business or an entrepreneur? We can help with your legal needs.
Mollaei Law is a business law firm serving businesses and entrepreneurs. We can help with all of your business needs including tailoring legal documents for your business, reviewing and drafting contracts, negotiating, business planning, setting up business entities, and helping with any of your business transactional forms.
For more information, visit www.mollaeilaw.com or give us a call at (818) 925-0002.