C corporations v/s S corporations

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In general terms, how are C corporations different from and similar to S corporations? 


Similarities  

Both are legal structures of a corporation, incorporated under state law by filing forms with the state. Both offer Limited liability protection and have the same legal protection. Both have the same compliance responsibilities such as adopting bylaws, issuing stock. 


Structure-wise, both corporations have shareholders, directors, and officers.  Shareholders own the corporation, but the Corporation owns the business. The shareholders elect the board of directors that oversees the business, and they elect the officers that will manage the daily business. 

 
 

Differences  

C corporations are the most prevalent as they are the default corporations under IRS rules. They are separately (from their owners) taxable entities and are subject to corporate income taxation.   

The owners, or shareholders, are taxed separately from the entity.  If corporate income is distributed to business owners as dividends, they are subject to double taxation, because dividends are considered personal taxable income. C corporation files a corporate federal tax return Form 1120.  


S corporations are so-called pass-through taxation entities.  

They file Form 1120S that is an informational federal return because no income tax is paid at the corporate level. All profits/losses are reported (passed-through) on the owners’ personal tax returns. Taxes are paid by the owners at the individual level.  

Both business structures get their names from the parts of the Internal Revenue Code that they are taxed under. 

Currently, I am an MBA student at EIU. This blog will follow my studies in Corporate taxation

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