Similarities and Differences in S and C Corporations When Learning How to Form an LLC in California
Entrepreneurs often inquire about how to form an LLC in California. They may not be aware of the various types of corporations that exist, but they may be cognizant of limiting their personal liability in the matter. In addition to learning about how to form an LLC in California, new business owners may be interested in learning whether an S corporation or a C corporation is the best option for their businesses’ needs.
While the S corporation has a special tax status recognized by the Internal Revenue Service, the C corporation is the standard option. Both types of corporations afford limited liability protection to their shareholders. This means that they are not usually personally responsible for debts or liabilities incurred by the corporation. Additionally, both corporations are separate legal identities that are established by a filing with the state. The filing requirements are the same for both corporation types.
Another significant similarity is that both types of corporations have officers, directors and shareholders. These distinctions help demonstrate how the business will be run and who has control over major decisions. Both types of corporations must follow the same set of corporate formalities and obligations, such as adopting their own set of bylaws, issuing stock, holding meetings for shareholders and directors, filing annual reports and paying annual fees.
Garrett Sutton can explain the various differences between these two types of corporations. For example, taxation tends to be very different between the corporations. For example, C corporations are considered separate taxable entities. They file a corporate tax return and pay taxes based on the corporate level. If corporate income is distributed to owners through dividends, double taxation may result due to taxing the corporate income first and then the personal income of the dividends.
S corporations file an informational federal return. No tax is paid at the corporate level. Instead, the business owners report income on their personal income tax returns.
Another key difference is that C corporations are not restricted on their ownership. However, S corporations can only have 100 shareholders or less. These shareholders are required to citizens or residents of the United States. Additionally, S corporations cannot be owned by other corporations, partnerships or certain kinds of trusts. S corporations are also restricted as to the type of stock they can issue. They can only have one class of stock. C corporations are allowed to have multiple classes of stocks.
Legal Assistance on How to Form an LLC in California
If you have any questions regarding which type of corporation you should form or how to form an LLC in California, contact Garrett Sutton at the Sutton Law Center by calling (775) 824-0300.