Question

Which type of corporation (C or S) would you prefer as the business owner? Which would you prefer as the taxpayer? Recall how the income for each is treated to inform your response.

Answer 1

Which type of corporation (C or S) would you prefer as the business owner?

As a business owner I would prefer C corporation over S corporation. The reason being different limitations imposed on S corporations. S corporation can only have limited shareholders of 100, further these shareholders should be US residents. So only people can be shareholders, hindering any future acquisition by C corporations or LLC's. Agian the US resident criteria can hinder international funding. S corporations have only one class of stock agian hindering investments.

Which would you prefer as the taxpayer?

As a tax payer I would prefer S corporation over C corporation. The reason being the pass through benefit enjoyed by S corporations. That is, the shareholders of S corpoartion can report business income and losses in their personal income tax returns. Further there is deductions available on business income in personal income tax returns. To top it off, if the shareholder has a business loss he can set this off with his personal income.