Visit the CTA Reference Center to receive the latest updates on the Corporate Transparency Act. Click here!
Visit the CTA Reference Center to receive the latest updates on the Corporate Transparency Act. Click here!
A corporation is defined as a company or group of people authorized to act as a single entity that has its own rights and obligations. Corporations that are created for the purpose of earning a profit can be classified as either an S-Corp or C-Corp depending on how they want to be structured. Corporations are subject to double taxation, which means that the profits are taxed once on the corporate level and also when they are distributed as dividends to the shareholders. To avoid double taxation, a company, if eligible, may elect S corporation status upon incorporating.
When a company is formed in any state it is automatically designated as a C-Corp. A C-Corp is company that is taxed separately from its owners. A corporation may qualify as a C-Corp without regard to any limit on the number of shareholders, foreign or domestic. This allows the corporation to sell shares to a large amount of investors, which allows for more funds to be raised for projects. C-Corps allow for multiple classes of shares. This helps attract different groups of investors as common stocks and preferred stocks both have their own distinct advantages that may appeal to one but not to another.
Generally, all for-profit corporations are automatically classified as a C corporation unless the corporation elects the option to treat the corporation as a flow-through entity known as an S corporation. An S Corporation is considered a privately held corporation that makes an election to be taxed under subchapter S of Chapter 1 of the Internal Revenue Code so that the corporation does not have pay income taxes. The corporation’s income or losses are divided among and passed through to its shareholders. The shareholders must report any income or loss on their own individual income tax returns.
This chart highlights some of the differences and similarities between the 2 types of corporations
| Characteristics | C Corporation | S Corporation |
|---|---|---|
| Register with Secretary of State | ||
| Taxed Separately | ||
| Limited Liability Protection | ||
| Income Taxation | ||
| Eligibility for Dividends Received Reductions | ||
| Unlimited Number of Shareholders | ||
| Has only 1 class of stock | ||
| Shareholders must all be U.S. citizens or residents |
Procedures and filing fees for forming a corporation will vary from state to state. In all cases, consult with your attorney or accountant to determine which type of entity structure works best for you.
UCS is with you every step of the way by providing the necessary forms to file with the Secretary of State as well as assist with drafting and submitting to the proper department. UCS also provides a registered agent office which is required in most states.
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