What is the difference between a C Corporation and S Corporation?

business meetingWhat is the difference between a C Corporation and S Corporation?

When deciding how you want to set up your business, some of the two options you can look into are S Corporation and C Corporation. Despite the difference in only one letter, these two business structures are not the same. You, therefore, need to go through each and decide which is best for you. You should also consult with a San Francisco business lawyer. They will analyze the needs of your business and inform you which one to go with.

Differences Between the C Corporation and S Corporation

When deciding which business structure is suitable for you, here are some ways these two sets up are different.


In a C corp, profits get taxed and are filed under a corporate tax return. Then the after-tax profits, which are distributed to shareholders, go through tax again. In an S corp, any profits or losses are distributed to the shareholders and are only taxed under the shareholders’ personal tax returns.


When it comes to selling shares of stock, a C corp is flexible. An S corp has a few limitations, including:

• It cannot issue more than a single class of stock.
• Cannot have more than 100 shareholders
• It is owned by other S corporations, a C corporation, partnerships, LLCs, or different trusts.

The restrictions do not apply to C corps, which allows the company to grow larger. That is why you need a business lawyer in San Francisco to help explain these differences and ensure you are not breaking any laws.

Benefits of an S corporation

• A single layer of taxation where, in an S corp, the income is only taxed at an individual level instead of corporate level
• According to The Tax Cuts and Jobs Act of 2017, eligible shareholders can qualify for a 20% business income deduction.
• Losses pass through the shareholders who can use it to offset income.

Benefits of C Corporation

• A C-corporation has an unlimited number of shareholders.
• There are no restrictions on ownership.
• The corporate tax rate is lower
• There are more options for raising capital due to fewer restrictions on ownership.

How Do You Choose What Is Right for You?

Usually, an S corp structure is preferred for small businesses because of the tax savings, while a C corp is common with large companies due to the flexibility of raising capital. When deciding what is right for you, you can get a business advisor and a San Francisco business attorney to help you analyze all aspects of each before choosing one.

Basics of a Corporation

A corporation is an entity separate from the shareholders, who are also the owners. To become a corporation, choose a name and a registered agent for the company. You will then need to file a document known as Articles of Incorporation with the state. After the process, you will need to do other duties like creating bylaws, issuing stock, and filing other necessary documents. Getting a business attorney in San Francisco to help you with this process is very important. They will ensure you understand everything.
Since all corporations start as C corporations, you will have to file IRS Form 2553 and other forms to become an S corp. Consider getting a business lawyer San Francisco who will help you prepare the necessary paperwork.

How an Attorney Can Help

As you can tell, whichever option you choose, this is a legal process. That means having an attorney is essential. They will ensure you have all the necessary documents to register the business and walk you through the crucial steps. Also, your company could be sued, and having a San Francisco business litigation attorney would come in handy.

As recommended by the Law Firm of James M. Braden, you need a skilled business attorney with experience. If you are in the process of incorporating your company, reach out to sf-lawyer.com. We will analyze the needs of your business and help you decide the right setup.