Register your company for FREE until August 31 (only state feeling fees apply).

 Start your company now!

What is the difference between a C-Corp vs S-Corp?

C-Corp and S-Corps are both corporations. They provide the same liability protection and have the same formal corporate requirements. However, there is a big difference when it comes to C-Corp vs S-Corp taxes. C-Corps pay corporate taxes on earnings while S-Corps are pass-through entities that do not pay taxes at the corporate level. As such, there is an S-Corp vs C-Corp tax benefit.

C-Corp vs S-Corp

C-Corp

C-Corps are the best entity type for companies with owners who seek:

  • Ability to raise capital

  • Positive public perception

  • Business credibility

  • Strict corporate formalities

Start your company

S-Corp

S-Corps are the best entity type for companies with owners who seek:

  • Pass-through taxation

  • Employee equity incentives

  • Business credibility

  • Strict corporate formalities

Start your company

Benefits of C-Corp vs S-Corp

  • Liability protection

  • Tax advantages

  • Raising capital

  • Tax planning options

  • Public perception

  • Business loans

Benefits & Advantages

  • Liability protection

  • Tax advantages

  • Employee equity incentives

  • Tax planning options

  • Public perception

  • Business loans

C-Corps are the right entity for:

Companies raising capital

The ability to issue unlimited shares to investors is an important consideration in the S-Corp vs C-Corp decision. The ability to offer unlimited shares to investors makes a C-Corp an attractive option for startup founders seeking to raise capital. Since most startups are not profitable for many years, the double taxation of a C-Corp should not necessarily increase a founder’s tax liability. However, if this is a concern, the shareholders can elect to be taxed as a pass-through S-Corp.

Companies joining incubators & accelerators

Sophisticated investors that participate in incubator and accelerator programs prefer to invest in C-Corps because they offer investors simplified taxation and corporate formalities that protect their investment. Understanding the benefits of C-Corp vs S-Corp is essential in this context. Since one of the big advantages of joining an incubator or accelerator is the access to a pool of investors and advisors, if you plan on joining such a program, you should consider forming a C-Corp.

Subsidiaries of foreign companies

C-Corps pay a reduced corporate income tax rate on company profits. If you are forming a subsidiary in the US, you may want to keep US profits separate from foreign income. In such a case, understanding the advantages of C-Corp vs S-Corp is important, as the corporate taxes levied on a C-Corp may be beneficial over the pass-through taxation of other entity types.

S-Corps are the right entity for:

Companies owned by US residents

Only US citizens and residents owners can elect to be taxed as an S-Corp. For these individuals, there are S-Corp vs C-Corp tax benefits, including pass-through taxation and savings on self-employment taxes. In addition, since S-Corps are corporations, they can issue stock and stock options to incentivize employee performance.

Businesses with US Employees

If your business requires employing US residents, considering S-Corp vs C-Corp is crucial. An S-Corp can provide you with both tax savings and employee performance incentives. By adding the owners to the existing payroll for other employees, the owners can save on self-employment taxes levied on dividends. Also, an S-Corp can issue employee incentives in the form of stock or stock options in the company.

Bootstrapped Startups

Unless you are raising money from investors, who generally prefer C-Corps, an S-Corp will provide you with all advantages of a corporation, including liability protection, public perception, and ability to issue stock and stock options to employees, without the need to pay additional corporate income taxes. Understanding the benefits of S-Corp vs C-Corp can help you make an informed decision for your business.

C-Corp

Pros

  • Liability protection > A C-Corp shields your personal assets from your company’s debts and legal liabilities.

  • Public perception > Most well-known companies are C-Corps. Owning a C-Corp tells the public that you are serious about scaling your business.

  • Raising capital > C-Corps have no limits on the amount of investors to whom they may issue shares. This is why C-Corps are the best entity type for raising capital.

  • Tax planning options > Owners of a C-Corp can elect S-Corp pass-through taxation which provides flexibility in tax planning and optimization.

  • Tax advantages > C-Corps pay reduced corporate income tax rates on company profits which can help you optimize on taxes in certain circumstances.

  • Business loans > A C-Corp allows you to build your business credit history which will provide access to business loans that will help your company grow.

  • Business credibility > When your business name has the designation “Inc.” at the end, it lets customers and partners know you are a credible business.

Cons

  • Double taxation > Unless it qualifies as an S-Corp, your C-Corp will pay income taxes on its profits and then shareholders will pay income taxes again on dividends issued.

  • Strict formalities > C-Corps are required to hold annual meetings, keep formal minutes of meetings, appoint a board of directors, and select officers.

S-Corp

Pros

  • Liability protection > An S-Corp shields your personal assets from your company’s debts and legal liabilities.

  • Public perception > Most well-known companies are corporations. Owning an S-Corp tells the public that you are serious about scaling your business.

  • Employee equity incentives > S-Corps allow their owners to issue stock and stock options to their employees without the double taxation of C-Corps.

  • Tax planning options > Owners of an S-Corp can elect C-Corp corporate taxation which provides flexibility in tax planning and optimization.

  • Tax advantages > S-Corps do not pay corporate income taxes and can help shareholders save on self-employment taxes.

  • Business loans > An S-Corp allows you to build your business credit history which will provide access to business loans that will help your company grow.

  • Business credibility > When your business name has the designation “Inc.” at the end, it lets customers and partners know you are a credible business.

Cons

  • Only for US residents > All owners of an S-Corp must be US residents or US citizens. If a single owner is a foreign resident, you cannot make an S-Corp election.

  • Strict formalities > S-Corps are required to hold annual meetings, keep formal minutes of meetings, appoint a board of directors, and select officers.

C-Corp Registration Fees

$35 - $300

State Registration Fee

HIGH

Annual Maintenance Cost
Start your company

C-Corp Registration Fees

$35 - $300

State Registration Fee

HIGH

Annual Maintenance Cost
Start your company

States

Delaware
California
All Others

States

Delaware
California
All Others

It’s time to start your new company today

Start your company