S Corp vs. C Corp

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 4,000 reviews

Jump to Section

Need help with Articles of Incorporation?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

Knowing the differences between an S corporation and a C corporation can help you save money, time, and a headache. When forming a company, both a C corporation and an S corporation are viable options.

Below, we’ve outlined everything you need to know about the tax advantages and legal obligations of S-corps vs. C-corps:

Difference Between an S Corp and C Corp

The main difference between an S corp and C corp is that C Corps can sell stocks whereas the former cannot. They also differ in business structure, taxation, and more.

Here is a closer look at the differences between an S-corp vs. C-corp:

Difference 1. Business Structure

Every corporation technically starts out as a C corporation. By filing IRS Form 2553 , you can convert a C corporation into an S corporation. There may also be state forms required for S corporation status.

You’ll also want to customize the following business structure and agreements according to the type you’re using:

You can find the provisions for S-corporations in Subchapter S of Chapter 1 of the Internal Revenue Code. You can headquarter your business in another state, such as through a Delaware C-Corp.

Difference 2. Taxation

The primary motivation for forming an S corporation is to save money on taxes. However, the taxation of a C corporation versus an S corporation is vastly different.

C corporation profits are taxed and reported on the corporation tax return for federal tax purposes. You distribute after-tax earnings as dividends to shareholders, who must then report them on their personal tax returns.

By electing S corp status for your company, you can avoid this “double taxation.” The IRS treats an S corporation in the same manner as a sole proprietorship or partnership.

The distributed profits or losses go to the shareholders through the S corporation. They are only taxed and reported on their personal tax returns.

Difference 3. Ownership

A C-corporation will give you more options when it comes to selling stock. According to the IRS, a corporation that chooses S corporation status cannot have shareholders or issue stocks.

On the other hand, C corporations don’t have these restrictions, allowing them to expand and grow. Having multiple classes of stock, for example, can assist a company in raising capital from investors.

This strategy can execute without granting them voting rights. They can also sell stocks through an Initial Public Offering, or IPO.

Meet some lawyers on our platform

Justin K.

3 projects on CC
View Profile

Wendy C.

2 projects on CC
View Profile

Todd H.

2 projects on CC
View Profile

Michael M.

168 projects on CC
View Profile

Reasons to Choose an S Corporation

S corporations reduce a business’s tax liability while easing investor eligibility requirements. They also provide more privacy protections than seen in other structures. If you have low-to-no physical overhead, an S corporation may be the perfect option for your business.

Here are five other reasons to choose an S corporation:

Reason 1. Personal Asset Protection

When forming a business under Chapter “S” of the Internal Revenue Code, it operates like a C-corporation but pays less taxes. This is like a non-incorporated business. This provision provides shareholder protection while passing earnings and losses directly to the owners.

Reason 2. Reduced Federal Taxes

You can save money by forming an S corporation. Because all corporate income deductions, credits, profits, and losses pass through to S corporation shareholders, S corporations pay no federal income tax.

S corporations also assist owner-operators. They accomplish this by effectively separating personal and professional liabilities, which also reduces tax obligations.

Reason 3. Personal Privacy

When you establish an S corporation , you create a new legal entity that is separate from yourself. This strategy ensures that the corporate entity is in charge of all your company’s actions and activities. An S corporation can help protect information about your ownership and involvement with the company if a lawsuit also threatens it.

Reason 4. Limits Liability

One of the most significant benefits of an S corporation is that it limits liability for both shareholders and management. Furthermore, you are free to appoint unlimited management. You are also not bound by any specific state residency requirements when using an S-corporation.

These rules apply as long as the shareholder is not a corporation. They must also be a U.S. citizen. S corporations also allow you to give membership to up to 100 people.

Reasons 5. All Profits Are Earnings

An S corporation is perfect if you pass all of your business profits through to earnings. The top personal income tax rate is now higher than the maximum corporate tax rate. S-corporations reduce your tax liability if your profits are your business owner’s income.

For more information about S-corps, check out this article .

Reasons to Choose a C Corporation

Are you determined to figure out if a C-corporation is the right choice for your business? Although some differences may exist, you glean several advantages from a C-corporation.

The following are some of the general reasons to choose a C Corporation structure:

Reason 1. Limitation of Liability

The main advantage of a C corporation is that it shields owners from personal liability. This advantage applies to the debts and obligations of the company. A shareholder’s liability for business debts is limited to the amount of their investment as long as they do not personally participate in any civil wrongdoing.

Reason 2. Operating Indefinitely

A C Corporation exists indefinitely. You do not have to dissolve the company when an owner dies. This is unlike a partnership or LLC in some jurisdictions.

Reason 3. No Shareholder Restrictions

Unlike an S Corporation, a C Corp can have an unlimited number of shareholders. They can also have different classes of shares, meaning that other types of shareholders have additional rights.

This is attractive if you think you will be looking to raise outside funding.

Reason 4. Outside Investors

Simply selling shares of stock makes it easier to sell or transfer a proprietorship interest. Transferring ownership interest or selling on the stock market does not require the approval of the other owners. These factors make attracting outside investment easier for this type of company.

For more information about C Corps, check out this article .

What’s Best for You: S Corp vs. C Corp?

Small businesses prefer S corporation status because they usually fit from the legal and tax parameters. Certain types of companies benefit more from being organized as a C Corporation.

Large corporations may not be able to form an S Corporation. They usually require the flexibility to have shareholders, sell shares, own shares by other entities, and issue multiple stock classes.

Smaller businesses prefer S Corporations because of the potential tax savings, while larger enterprises prefer C Corporations because of more significant capital raising. However, determining whether a C Corporation vs. S Corporation is best for your company requires careful consideration of several factors.

Can an LLC be an S Corp or C Corp?

An LLC can elect to be taxed as an S Corporation, but cannot be a C Corporation. An LLC is governed by state law, whereas federal law governs an S Corporation. Members of an LLC must pay self-employment taxes to the IRS, including Social Security and Medicare taxes.

The business formation you choose will have a significant impact on your company’s future. When setting up a pass-through entity for asset protection, limited partnerships, or joint ventures , always speak with corporate lawyers. They’ll ensure that you avoid legal mistakes entirely while achieving your short- and long-term business objectives effectively.

Post a project in ContractsCounsel’s marketplace to get flat fee bids from lawyers for business formation. All lawyers are vetted by our team and peer-reviewed by our customers for you to explore before hiring.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Joseph L. on ContractsCounsel
View Joseph
5.0 (13)
Member Since:
July 26, 2021

Joseph L.

Free Consultation
Get Free Proposal
40 Yrs Experience
Licensed in CT
Southwestern University School of Law

Mr. LaRocco's focus is business law, corporate structuring, and contracts. He has a depth of experience working with entrepreneurs and startups, including some small public companies. As a result of his business background, he has not only acted as general counsel to companies, but has also been on the board of directors of several and been a business advisor and strategist. Some clients and projects I have recently done work for include a hospitality consulting company, a web development/marketing agency, a modular home company, an e-commerce consumer goods company, an online ordering app for restaurants, a music file-sharing company, a company that licenses its photos and graphic images, a video editing company, several SaaS companies, a merchant processing/services company, a financial services software company that earned a licensing and marketing contract with Thomson Reuters, and a real estate software company.

Harry S. on ContractsCounsel
View Harry
5.0 (1)
Member Since:
July 27, 2021

Harry S.

Free Consultation
Get Free Proposal
9 Yrs Experience
Licensed in NY

Stirk Law is a law firm based in London that advises on dispute resolution, commercial and corporate arrangements, employment and private wealth. We are experts in our areas and experienced in advising on complex and high value matters in the UK and internationally. We have extensive onshore and offshore experience across a variety of areas such as the administration of trusts together with complex fraud and trust disputes. Our expertise includes the conduct of significant and high-value cases valued at up to in excess of £1 billion over a combined 40 years of legal practice in England, Jersey and Guernsey. As well as having a large international network, we work closely with a corporate investigations and risk advisory business based in London and Vienna. Together we can deliver a holistic service for cases involving fraud, dissipation of assets or other illegal activity.

Talin H. on ContractsCounsel
View Talin
5.0 (1)
Member Since:
July 29, 2021

Talin H.

Free Consultation
Get Free Proposal
14 Yrs Experience
Licensed in IL
DePaul College of Law

Talin has over a decade of focused experience in business and international law. She is fiercely dedicated to her clients, thorough, detail-oriented, and gets the job done.

Craig M. on ContractsCounsel
View Craig
5.0 (3)
Member Since:
August 2, 2021

Craig M.

Free Consultation
Get Free Proposal
7 Yrs Experience
Licensed in ME
New York Law School

I have been practicing law for more than 4 years at a small firm in York County, Maine. I recently decided to hang my shingle, Dirigo Law LLC. My practice focuses mostly on Real Estate / Corporate transactions, Wills, Trusts, and Probate matters.

Melissa G. on ContractsCounsel
View Melissa
5.0 (1)
Member Since:
August 5, 2021

Melissa G.

Owner/Managing Member
Free Consultation
Get Free Proposal
19 Yrs Experience
Licensed in DC, IL, OH
University of Michigan

Melissa Green recently opened her own law firm which focuses on providing general counsel subscription services (think of it as your attorney "on-call"), business formation services, and contract services (including review and mark-up, custom contracts, templates, and negotiation assistance). Prior to opening her own firm, Melissa joined the American Medical Association (AMA) as an Assistant General Counsel in November 2019. In her role at the AMA, Melissa supported the CPT and Masterfile licensing programs, in addition to supporting the legal needs of the Professional Satisfaction and Practice Sustainability business unit. Prior to arriving at the AMA, Melissa was the Chief Legal Counsel and Privacy Officer at The Chartis Group, a healthcare advisory services and analytics company, headquartered in Chicago, where she was responsible for commercial transactions for Chartis and its wholly owned SaaS company, and also served as the organization’s privacy officer responsible for HIPAA compliance. Melissa started her legal career in Cincinnati, Ohio at the law firm of Frost Brown Todd where she served as an associate in the Corporate department doing healthcare transactions, securities, and general corporate work. In 2007, Melissa transitioned into her first in-house counsel role at GE Aviation. During her time at GE, she had many roles including supporting new engine sales transactions for the Europe/Middle East/Africa region, its Electric Power business located in Dayton, its Engine Services business (supporting the CF34 and CF6 engine lines), and compliance. Upon leaving GE, Melissa had a brief stint at MedStar in Virginia before accepting a full-time position at the University of Maryland Medical System in Baltimore, Maryland in July 2013. Originally from East Lansing, Michigan, Melissa received her bachelor’s graduate from Michigan State University’s – James Madison College and is a graduate of the University of Michigan Law School.

Yaser M. on ContractsCounsel
View Yaser
Member Since:
July 21, 2021

Yaser M.

Self Employed
Free Consultation
Get Free Proposal
13 Yrs Experience
Licensed in TX
University of London

I have practiced law in foreign jurisdiction for more than 11 years and more than one year in Texas. I am Texas licensed attorney. Practice areas include Corporate: incorporation of business entities, drafting of operating agreements, by-laws, and business contracts; Commercial: business disputes, demand letters, cease and desist lettera, dealing with insurance companies, negotiations, settlements of disputes, commercial real estate, and business litigation Litigation: business disputes, personal injury, civil rights, cross-border matters, maritime matters, drafting of litigation pleadings, motion practice, legal research, white-collar defense.

Stanley K. on ContractsCounsel
View Stanley
Member Since:
July 29, 2021

Stanley K.

Corporate Attorney
Free Consultation
Get Free Proposal
Waltham, MA
29 Yrs Experience
Licensed in CA, MA, TX
University of Texas School of Law

Stan provides legal services to small to medium-sized clients in the New England region, and throughout the U.S. and abroad. His clients are involved in a variety of business sectors, including software development, e-commerce, investment management and advising, health care, manufacturing, biotechnology, telecommunications, retailing, and consulting and other services. Stan focuses on the unique needs of each of his clients, and seeks to establish long term relationships with them by providing timely, highly professional services and practical business judgment. Each client's objectives, business and management styles are carefully considered to help him provide more focused and relevant services. Stan also acts as an outsourced general counsel for some of his clients for the general management of their legal function, including the establishment of budgets, creation of internal compliance procedures, and the oversight of litigation or other outside legal services.

Sam W. on ContractsCounsel
View Sam
Member Since:
July 30, 2021

Sam W.

Entertainment attorney
Free Consultation
Get Free Proposal
Los Angeles
9 Yrs Experience
Licensed in CA
Columbus School of Law, The Catholic University of America

Entertainment attorney and film producer. Counsel clients on all matter of entertainment-related contracts, including talent representation, crew deals, financing agreements, and production legal. Former litigation attorney and owner of a documentary and scripted film and television production company. Well versed in small business foundation and general business contracts.

Robert D. on ContractsCounsel
View Robert
Member Since:
August 3, 2021

Robert D.

Solo Practitioner
Free Consultation
Get Free Proposal
Cincinnati, OH
29 Yrs Experience
Licensed in DC, NY
University North Carolina Chapel Hill School of Law

Robert is a skilled corporate lawyer, licensed to practice law in NY and DC. He has over 25 years of experience, with a focus on Venture Capital, Private Equity, M&A, General Business Law and Company Formation. Robert brings business side experience to every legal transactions. This allows him to shape a client's legal needs around its business goals to drive success in an effective and efficient manner.

Tim M. on ContractsCounsel
View Tim
Member Since:
August 3, 2021

Tim M.

Managing Partner
Free Consultation
Get Free Proposal
Cambridge, MA
25 Yrs Experience
Licensed in MA, NY
Boston College Law School

Tim has 20 years of experience representing a wide variety of emerging and established companies in the technology, software, bitcoin and professional services industries. He works directly with his clients’ executives and boards of directors on corporate, intellectual property, and securities law issues. Recently, Tim has advised clients on Series A and Series B financings, corporate structuring, complex video licensing agreements, and structuring new hedge funds. Tim previously served as Forrester Research, Inc.’s General Counsel and Secretary where he was chief legal officer, led the company’s legal group, and managed the company’s legal and regulatory affairs. Tim played an integral role in the company’s initial public offering in 1997 and coordinated its secondary offering in 2000. He directed the legal process in the company’s acquisitions of Giga Information Group, Inc., Fletcher Research and Forit GmbH and oversaw over $125million in transactions. He also managed the company’s intellectual property assets. Tim is admitted to practice in Massachusetts and New York. Tim holds a Juris Doctor degree from the Boston College Law School and a Bachelor of Arts degree from Trinity College

Spencer W. on ContractsCounsel
View Spencer
Member Since:
August 4, 2021

Spencer W.

Free Consultation
Get Free Proposal
New York
12 Yrs Experience
Licensed in NY
Columbia Law School

I’m a New York based attorney with substantial experience in media and art law, corporate structuring and commercial contracts. For the past several years, I have been advising startups and new business on their legal needs, with a special focus on tech and entertainment.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call