How to Choose Between an S-Corp and a C-Corp for Business Incorporation?

When establishing a legal business entity, you can choose from several structures, including C corporations and S corporations. C-Corps have standard corporate tax treatment while S-Corps are C-Corps that have opted for pass-through taxation. Explore potential tax advantages and other differences between these entities. An experienced business attorney in Las Vegas can help you make the final decision about the right format for your business.

Choosing an S-Corp or C-Corp: Advice From Your Las Vegas Incorporation Attorney

Legal Liability Protection

Both S-Corps and C-Corps limit your liability for business debts and obligations. If your company loses a lawsuit, the court cannot claim your home or other personal assets to pay the ordered legal judgment.

If you don’t establish a separate entity for your business, you have unlimited legal liability and may have to cede personal property to pay a court-ordered settlement. For both types of corporations, limited liability applies to officers, directors, shareholders, and employees.

Tax Treatment

C-Corps experience double taxation. The IRS taxes revenue earned by the business and taxes that money again when shareholders receive it as dividend income. Many businesses choose an S-Corp structure to avoid double taxation. An S-Corp has pass-through taxation, which means each shareholder pays income tax on their share of the profits. The business doesn’t pay a separate corporate tax.

C-Corps have the advantage of deducting the cost of employee benefits, which can result in significant tax savings. They can save by deducting losses in a future, more profitable tax year. C-corps also save on taxes when personal tax rates exceed corporate rates. In addition, C-Corp owners save on self-employment tax if they’re classified as employees.

Shareholder and Stock Rules

C-Corps can have an unlimited number of shareholders and issue distinct classes of stock. In contrast, S-Corps have a 100-shareholder limit, and they can only issue a single class of stock. As a result, they have a limited ability to raise money through selling shares compared to the substantial fundraising capacity of a C-Corp.

In addition, partnerships, other corporations, and non-resident aliens can’t own shares in S-Corps. However, these groups can buy stocks in C-Corps.

Formation and Structure

When you establish a corporation, the C-Corp is the default structure. You’ll file Articles of Incorporation with the Nevada Secretary of State and pay the required fee. If you want to create an S-Corp, you first establish a C-Corp, then complete IRS Form 2553 to elect S-Corp tax treatment.

Once formed, C-Corps and S-Corps have a similar structure. The owners typically appoint a board of directors to oversee the management team that runs the day-to-day operations of the business. Both entities also have to make regular reports to the Secretary of State, pay annual fees, and meet other legal requirements to remain in good standing.

Your business may benefit from either the C-Corp or S-Corp structure depending on its size, financial goals, and other factors. Consider the knowledgeable guidance of an incorporation lawyer to help you navigate this important decision. Contact Hutchings Law Group in Las Vegas, NV today to learn more about how we can provide support as your company incorporates and grows.

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