S Corp vs C Corp vs LLC vs LLP: Everything You Need to Know
The differences between an S Corp vs C Corp vs LLC vs LLP offer numerous advantages and disadvantages to each entity.3 min read
The differences between an S Corp vs C Corp vs LLC vs LLP offer numerous advantages and disadvantages to each entity. In order to determine which business structure will best suit your company, it's important to take a thorough look at the characteristics, benefits, and limitations of each type of structure.
S Corporation (S Corp)
For you personally, an S Corporation offers the same type of liability as an LLC does. The main difference between the two types of entities is the way you'll pay tax on your income.
With an LLC, business income and expenses are accounted for in the personal tax of the business owner. With an S Corporation, the company essentially pays you a salary, which you then pay taxes on as regular income. In addition, any extra profits are considered dividends, which are taxed less than they would be in an LLC. Therefore, in some situations, S Corporations offer significant tax benefits.
S Corporations have only one class of stock and they must not exceed 100 shareholders.
C Corporation (C Corp)
The principal difference between a C Corporation and other structures is again the difference between tax options. An S Corporation and an LLC have different ways of dealing with tax, but the responsibility for paying tax on the profits of the company stays with the owners. The C Corporation and the LLC both offer limited liability protection for their owners.
C Corporations have no limits on the classes of stock or number of shareholders allowed.
To form a C Corporation, a company must submit Articles of Incorporation. Shareholders purchase stock in the company as a form of collateral.
Corporations receive favorable tax options when it comes to the ability to deduct expenses from company benefits, such as health insurance, life insurance, and retirement packages. These benefits are not considered income to the employee, so they are not taxed. As the IRS strictly defines “employee,” for an owner to be considered an employee, the business must be a corporation.