ContractsCounsel Logo
Home Blog S Corp vs. C Corp

S Corp vs. C Corp

Jump to Section

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

Samuel R.

67 projects on CC
CC verified
View Profile

Leonid G.

4 projects on CC
CC verified
View Profile

Danny J.

11 projects on CC
CC verified
View Profile

Daehoon P.

199 projects on CC
CC verified
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.


ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


Need help registering a business?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,053 reviews

Meet some of our Lawyers

Jeremiah C. on ContractsCounsel
View Jeremiah
5.0 (47)
Member Since:
March 5, 2021

Jeremiah C.

Partner/Attorney at Law
Free Consultation
Houston
16 Yrs Experience
Licensed in NV, TX
Thomas Jefferson

Creative, results driven business & technology executive with 24 years of experience (15+ as a business/corporate lawyer). A problem solver with a passion for business, technology, and law. I bring a thorough understanding of the intersection of the law and business needs to any endeavor, having founded multiple startups myself with successful exits. I provide professional business and legal consulting. Throughout my career I've represented a number large corporations (including some of the top Fortune 500 companies) but the vast majority of my clients these days are startups and small businesses. Having represented hundreds of successful crowdfunded startups, I'm one of the most well known attorneys for startups seeking CF funds. I hold a Juris Doctor degree with a focus on Business/Corporate Law, a Master of Business Administration degree in Entrepreneurship, A Master of Education degree and dual Bachelor of Science degrees. I look forward to working with any parties that have a need for my skill sets.

Nicholas M. on ContractsCounsel
View Nicholas
5.0 (33)
Member Since:
June 1, 2023

Nicholas M.

President/Attorney
Free Consultation
Providence, Rhode Island
14 Yrs Experience
Licensed in CT, MA, NC, RI
The Catholic University of America, Columbus School of Law

Nicholas Matlach is a cybersecurity expert (CISSP) and an attorney who is dedicated to helping small businesses succeed. He is a client-focused professional who has a deep understanding of the challenges that small businesses face in the digital age. He also provides legal counsel to small businesses on a variety of issues, including formation, intellectual property, contracts, and employment law.

Rene H. on ContractsCounsel
View Rene
5.0 (23)
Member Since:
February 6, 2023

Rene H.

Attorney
Free Consultation
San Diego, CA
13 Yrs Experience
Licensed in CA
Northwestern University

I am an attorney licensed in both California and Mexico. I offer a unique blend of 14 years of legal expertise that bridges the gap between diverse legal landscapes. My background is enriched by significant roles as in-house counsel for global powerhouses such as Anheuser-Busch, Campari Group, and Grupo Lala, alongside contributions to Tier 1 law firms. I specialize in navigating the complexities of two pivotal areas: AI/Tech Innovation: With a profound grasp of both cutting-edge transformer models and foundational machine learning technologies, I am your go-to advisor for integrating these advancements into your business. Whether it's B2B or B2C applications, I ensure that your company harnesses the power of AI in a manner that's not only enterprise-friendly but also fully compliant with regulatory standards. Cross-Border Excellence: My expertise extends beyond borders, with over a decade of experience facilitating cross-border operations for companies in more than 20 countries. I am particularly adept at enhancing US-Mexico operations, ensuring seamless and efficient business transactions across these territories.

Karen S. on ContractsCounsel
View Karen
4.8 (24)
Member Since:
January 31, 2023

Karen S.

Attorney
Free Consultation
Atlanta, GA
13 Yrs Experience
Licensed in GA
Georgia State University

I'm an attorney available to help small businesses in Georgia get started with initial business set-up, required filings, tax strategies, etc. I'm also available to draft, review, and negotiate contracts. I can draft and file real estate quit claims as well. My experience areas include small business startups, information technology, technology innovation, real estate transactions, taxes, community associations, intellectual property, electrical engineering, the business of video game development, higher education, business requirements definition, technology consulting, program management, and the electric utility industry. I work part-time for a local law firm and part-time in my solo practice. I'm also an adjunct professor at Southern New Hampshire University teaching business innovation and business law. In addition, I'm part owner, legal counsel to, and a board member of a virtual reality video game development company. I am a member of the Georgia Bar Association. Please reach out if you need attorney, documentation or consulting help in any of those areas!

Judi P. on ContractsCounsel
View Judi
Member Since:
January 26, 2023

Judi P.

Attorney
Free Consultation
New Mexico
4 Yrs Experience
Licensed in NM
Arizona Summit Law School

Driven attorney with a knack for alternative dispute resolution, real estate, corporate law, immigration, and basic estate planning, with superb people skills and high emotional intelligence, and for working smart and efficiently, as well as time and financial management skills to deliver excellent legal work and solutions to legal issues. Seasoned with 20+ years of law firm and legal experience (real estate/corporate).

Brittany T. on ContractsCounsel
View Brittany
Member Since:
January 26, 2023

Brittany T.

Attorney
Free Consultation
Georgia
10 Yrs Experience
Licensed in GA
Florida Coastal Law School

Brittany is an experienced attorney specializing in transactional and complex contract matters including but not limited to SaaS development and product implementation, technology/data agreements, licensing, and compliance. She has over 7 years of experience providing strategic legal advice to individuals and business clients of all sizes, from start-ups to large corporations. Brittany has a strong understanding of the legal issues related to technology and software and is well-versed in drafting and negotiating contracts ranging from software licenses to data sharing agreements. She is a highly-skilled negotiator and is adept at finding creative solutions to challenging legal issues.

Find the best lawyer for your project

Browse Lawyers Now

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Need help registering a business?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,053 reviews
CONTRACT LAWYERS BY TOP CITIES
See All Corporate Lawyers

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

Need help registering a business?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,053 reviews

Want to speak to someone?

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

Request a call

Find lawyers and attorneys by city