FAQS
What is an S-Corp and how does it differ from a C-Corp?
- Formation
- How To Start
S-Corporations (“S-Corps”) were more broadly used for smaller companies before LLCs became popular for pass-through tax treatment, but S-Corps are still used by some startups today.
Governance. Corporate governance of an S-Corp is similar to that of a C-Corp, with the stockholders electing a board of directors which then appoints officers to run day-to-day operations of the corporation.
Pass-through taxation. S-Corps, like LLCs (and unlike C-Corps), are pass-through entities for tax purposes, so profits and losses are allocated to the stockholders, and taxes are required to be paid by the stockholders, instead of by the S-Corp itself.
Special requirements. S-Corps are subject to specific requirements to maintain S-Corp status which include initially filing an S-Election with the IRS, authorizing only one class of stock, and having no more than 100 stockholders. Stockholders must also be individuals and cannot be non-US “foreign” persons. For these reasons, S-Corporations are usually not a workable structure for companies seeking venture capital investment.
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