Question

what are the similarities and differences between C corporation and S corporation

Answer 1

Following are the Similarities between the C corporations and S corporations:

• For both the C corporations and S corporations the personal income tax is due with respect to any salary drawn from the corporation as well as from any dividends received from the corporation.
• . Both C corporations and S corporations are legal entities and treated as individuals in the eyes of law
• Both C corporations and S corporations have a life that is not limited and they continue to prevail and exist even after the death of the owner or the owners of the C corporations and S corporations respectively.
• Both C corporations and S corporations provide a limited liability protection for the shareholders and therefore they cannot under normal circumstances be held responsible for the corporation’s debts and liabilities.
• . Both C corps and S corps are comprised of shareholders who are owners of the corporation and directors who are elected by the shareholders who are responsible for the substantial and prominent decisions taken by the management , and officers of the corporation who have been selected and appointed by the board of directors who are in turn in charge of the day-to-day operations and functioning of the corporation.
• In case of both the C and S corp the ownership is transferred by selling the shares of the corporation’s stock and both the C and S Corporations can raise additional capital also by selling the stock.

Differences between the C corporations and the S corporations are as follows:

1. C corporations are entities that are separately taxable and the S corporations are pass-through tax entities
2. The C corporations file a corporate tax return under the Form 1120 and the S corporations file an informational federal return under the Form 1120S.
3. C corporations pay taxes at the corporate level and they also face the likelihood of double taxation if the corporate income is distributed to business owners in the form of dividends, which are treated as their personal income whereas the S corporations do not pay any income tax themselves but the individual shareholders or the business owners should include their share in the S corporation’s Profit in the tax return that they file at an individual level and thereby paying taxes on it at the tax rate applicable for individuals.
4. C corporations have no restrictions on ownership whereas the S corporations are restricted to not more than 100 shareholders, and shareholders must be citizens or residents of US.
5. S corporations can have only one class of stock (though the voting rights may differ), while C corporations can have multiple classes of stock.
6. C corporations have no restrictions with respect to the business to be carried on by them whereas the

S corporations are not entitled to conduct certain kinds of business which are namely banking business , insurance business etc.