Question

What is a C corporation and a S corporation?

How does a partnership relate to it?

Answer 1

S Corporation

A Subchapter S (S Corporation) is a form of corporation that meets specific Internal Revenue Code requirements, giving a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership. The corporation can pass income directly to shareholders and avoid the double taxation that is inherent with the dividends of public companies, while still enjoying the advantages of the corporate structure. Requirements include being a domestic corporation, not having more than 100 shareholders, including only eligible shareholders and having only one class of stock.

C corporation

A C corporation is a business term that is used to distinguish this type of entity from others, as its profits are taxed separately from its owners under subchapter C of the Internal Revenue Code.A C corporation is owned by shareholders, who must elect a board of directors that make business decisions and oversee policies. In most cases, a C corporation is required to report its financial operations to the state attorney general. Because a corporation is treated as an independent entity, a C corporation does not cease to exist when its owners or shareholders change or die.

Another major advantage of a C corporation is that its owners have limited liability. Thus, they do not stand personally liable for debts incurred by the corporation. They cannot be sued individually for corporate wrongdoings.

LLCs with more than one owner can be taxed either as a partnership or a corporation. ... An S corp is considered a "pass-through entity," which means the business itself isn't taxed. Instead, income is reported on the owners' personal tax returns. Businesses taxed as C corporations are not pass through entities.