C Corp vs S Corp: Explained
Businesses should file as a C corp if they want to go public, have international investors, multiple stocks, and transferable shares. For example, if you have a tech startup and want growth with investors, file as a C corp. This enables expansion and becoming publicly traded.
Key Differences Between C Corp and S Corp
C Corps are typically larger, publicly traded companies while S Corps are typically small, closely held businesses. If a business intends to go public, it must be structured as a C Corp, as S Corps are not eligible for public offerings.
Comparison of Ownership and Benefits
- No Restrictions on Ownership: In C corp, anyone can have shares. This flexibility takes advantage of restrictions on S corps.
- No Restrictions on Classes: A C-corp can allot stock classes, including preferred shares with dividend and deal preferences.
Similarities and Differences Between S Corp and C Corp
Both provide liability protection to owners. Both are separate legal entities that can enter contracts and sue or be sued. Both have compliance requirements. The key difference is an S corporation has pass-through taxation and a C corporation is a legal business entity taxed as a corporation.
Conclusion
The decision between C Corporation and S Corporation classification impacts a company’s future, growth, and investor base. It’s important to consult an accountant who will be filing your taxes before making this business decision.