Before you even begin to launch your business plans, you need to determine the right entity formation. There are several options to choose from. Many smaller businesses might opt for a sole proprietorship, partnership, or LLC. Your choice will depend on the ownership, business model, and your possible liabilities. These are all things you should take into consideration in the early planning stages.

If you’re looking to grow your company to a large scale or need asset protection to keep your personal finances separated from business liabilities, the best option would be to incorporate. The two corporation structures you need to consider are the S-Corp and the C-Corp. Both of these formations have some benefits but they are decidedly different in structure.

The Differences Between S-Corp and C-Corp

S-Corp and C-Corp both offer limited liability. This means that if your business were to be sued, your personal assets would never be at risk. There are a few distinct differences between an S-Corp and C-Corp. You’ll look largely at your long term business goals and taxation considerations when you make your final choice between the two structures.

As a quick overview, here are some of the qualities of each entity formation:

C-Corp:

• Limited Liability. The owner’s personal assets cannot be included in any suit or judgment against the corporation.
• Separate Entity. The corporation is its own entity, separate from individual owners. This means the owner’s shares can be passed to heirs unless there are provisions for the sale or buyback of shares among partners/shareholders.
• Shareholders Have No Limitations. A C-Corp can have any type of shareholder, including other companies and shareholders in any nation.
• Double Taxed. C-Corps pay taxes twice. The corporation pays taxes and the shareholders also pay taxes on their profits over the fiscal year.

S-Corp:

• Limited Liability. Like the C-Corp, the S-Corp also protects the owner’s personal assets from any suit or judgment against the corporate entity.
• Separate Entity. Again, the S-Corp is also its own entity, completely separate from the individual owners. 
• There Are Limitations on Shareholders. Unlike the C-Corp, the S-Corp has limitations where ownership is concerned. Companies and corporate entities cannot be shareholders of an S-Corp and owners must be domestic, rather than outside of the US.
• Pass-Through Entity. S-Corps are what’s known as a “pass-through entity”. This means that S-Corps are only taxed once. The corporation doesn’t pay taxes. Instead, the owners pay taxes and can also deduct business losses. This can be a considerable saving in taxation depending on the type of business.

Which Business Entity Is Right for Your Business?

C-Corps would be a good choice is you plan on growing and eventually taking your business public. S-Corps are an excellent structure if you’d like a pass-through entity where you’re only paying taxation once. Are you ready to start your business journey? Visit Inc Fast Now and get all the resources you need to start your business today!