The C Corporation
The C Corporation is often regarded as the traditional form of business entity. Corporations are owned by their shareholders who elect directors to manage the business. Directors then appoint officers to handle the daily operations. Liability for damages or debts is generally limited to the corporation's assets, protecting shareholders and officers from being held personally liable. Though corporations often choose the subchapter S election, companies looking to go public or raise money from venture capitalists or angel investors gravitate toward the C Corporation because of investor preferences.
The observation of corporate formalities is even more important in the corporation in order to maintain the protections afforded by this type of entity, such as protecting shareholders from being personally liable for the obligations of the company. Corporate formalities are most important in decision making by shareholders and directors and keeping corporate and personal assets separated.
The S Corporation
An S Corporation is simply a corporation that elects to be taxed like a partnership. Unlike with a C Corporation, business income from an S Corporation “passes through” the entity and appears on the business owners' personal tax returns, sometimes resulting in tax savings. If you are interested in forming an S Corporation, you must file your election with the IRS within the deadline, or risk losing the option. Be sure to consult with a CPA about the best tax form you should elect for your business.
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