C companies and S corporations are similar across multiple dimensions as they both have limited immunity from company debts and liabilities. In terms of corporate relations with the board of directors, officers and shareholders, they must establish a corporate structure. Additionally, both C and S organizations must both file Articles of Incorporation with the governing state body and adhere to the corporate formation guidelines (What is a C Corporation? n.d.). However, despite a list of similarities, both types of companies have significant differences based on ownership, shareholder rights, and taxation. A C company may have an infinite number of shareholders, as well as be owned by other companies or trusts, while an S corporation cannot.
There are a variety of justifications to which a person would choose a C company over an S company. A C Company is created by obtaining a charter with the state of incorporation, where the owner has the option of issuing shares to other shareholders in return for cash, assets or keeping all of the shares (Kagan, 2019). Although most states have laws governing partnership rights and restrictions, this type of enterprise does not necessitate legal documentation. In return for property or services, partners obtain an interest in the partnership, which is a capital asset and reflects an equity interest equivalent to corporate stock. A C company may be preferred over an alliance by an entrepreneur seeking liability insurance from the business’s activities.
C Corporations may become a feasible way to get venture capital and other forms of equity funding. It pays corporate taxes, as opposed to S Corporations, and as a result, it faces the drawback of double taxation (Forming a Corporation, 2019). In addition, a C company is subject to much more federal and state laws than other types of enterprise, which may serve as a drawback for choosing such a business form. Therefore, for small business owners, the C corporation is an often-overlooked choice. Operating as a C company may provide structural benefits that an S corporation or other business forms cannot provide.
References
Forming a corporation | Internal Revenue Service. (2019). IRS. Web.
Kagan, J. (2019). How C corporations work. Investopedia. Web.
What is a C corporation? (n.d.). Tax Foundation. Web.