{"id":4807,"date":"2021-09-10T10:46:35","date_gmt":"2021-09-10T15:46:35","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/incorporation-and-legal-structures\/c-corp-vs-s-corp.html"},"modified":"2025-10-13T22:25:00","modified_gmt":"2025-10-14T03:25:00","slug":"c-corp-vs-s-corp","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/c-corp-vs-s-corp.html","title":{"rendered":"C Corp vs. S Corp: What’s the Best Option?"},"content":{"rendered":"\n
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C Corp vs. S Corp: What's the Best Option?<\/h1>\n\n
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\n By Tim Kelly, J.D.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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C corporations<\/span> (C-corps<\/span>) and S corporations<\/span> (S-corps) are tax designations you can choose for your business entity<\/span>. They are named after their subchapters<\/span> in the U.S. Internal Revenue Code<\/span>. Both types of corporation<\/span> protect your assets from creditors and business debts. While they have similarities, there are a few critical differences that new business owners<\/span> should know before choosing one for their enterprise.<\/p>\n\n <\/div>\n\n\n\n

How Can You Tell a C Corp<\/span> From an S Corp?<\/h2>\n

The easiest way to tell a C-corp<\/span> from an S-corp<\/a> is its\u00a0tax structure<\/a>. A C-corp<\/span> is subject to double taxation<\/span>. First, companies pay a corporate <\/span>income tax<\/span> on business income<\/span>, and then owners are taxed again at the personal income level on dividend payments.<\/p>\n

S-corps do not pay a tax at the corporate level. Instead, the owners or shareholders report any company profits at the personal income level. This is similar to how partnerships and limited liability partnerships<\/span> (LLPs<\/span>) are taxed.<\/p>\n

C-corps<\/span> and S-corps also differ in some of the ways they are owned and operated.<\/p>\n

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Similarities Between C-Corps<\/span> and S-Corps<\/h2>\n

To understand how they are different, it\u2019s best to start with how C-corps<\/span> and S-corps are similar.<\/p>\n

Both\u00a0corporate<\/a>\u00a0designations feature formalities such as requiring\u00a0articles of incorporation<\/span><\/a>\u00a0and establishing\u00a0a board of directors<\/span><\/a>. Both types must also adopt bylaws, issue stock, and file yearly reports with the state. Owners are called shareholders, and they must hire directors to manage the company\u2019s operations.<\/p>\n

Both C-corps<\/span> and S-corps carry a limited personal liability shield for owners. This is because corporations are separate entities from their owners. Their personal assets<\/span> are protected from business debts and lawsuits.<\/p>\n

The Key Differences: Taxation and Formation<\/h2>\n

The biggest difference between C-corps<\/span> and S-corps is how they are taxed and set up.<\/p>\n

Taxation<\/h3>\n

C-corps<\/span> are subject to\u00a0double taxation<\/span><\/a>. Here, a company\u2019s profits are taxed first at the corporate level and again at the personal income level. This means that any profits (or dividends) allotted to shareholders can be taxed again on their personal <\/span>income <\/span>tax<\/span> returns<\/span>.<\/p>\n

On the other hand, there are tax advantages<\/span> for S-corps because they avoid double taxation<\/span>. With an S corporation<\/span> status<\/span>, any profits or losses pass through the company to the shareholders, who are then taxed at their personal <\/span>income tax<\/span> rate<\/span>.<\/p>\n

While S-corps have been favored business structures<\/span> because they do away with the double tax, the 2017 tax bill made important changes. C-corps<\/span> now have a flat corporate tax rate of 21%.<\/p>\n

These subtle differences can make it difficult for small <\/span>business<\/span> owners<\/span> to decide which structure is best. It\u2019s best to weigh the pros and cons of each against your business\u2019s structure and goals.<\/p>\n

Formation<\/h3>\n

C-corps<\/span> are the default tax designation for corporations. Thus, they are easier to form than S-corps. If a company files articles of incorporation<\/span> in its state, the Internal Revenue Service<\/span> (IRS<\/span>) will recognize it as a C-corporation<\/span> unless the company elects otherwise. There is no limit to the number of shareholders a C-corp<\/span> can have.<\/p>\n

To shift their status to an S-corp, companies must fill out\u00a0IRS<\/span> Form 2553<\/a>. Businesses can make this change any time so long as they meet the requirements. Note that the criteria for filing as an S-corp are more strict. A company seeking S-corp status<\/span> must:<\/p>\n