Starting a business in the Tampa area requires a lot of planning. One of the things to think about is what business structure to use. Choosing the right type of business entity is important to help shield the owners from personal liability for the business’ debts and legal actions taken against the company.
Starting a business as a corporation can be a very good choice for some companies, but it is important to choose the right type of corporate entity.
There are two main types of corporations: S-corporations and C-corporations. While there are similarities between the two in terms of each having shareholders who share in the ownership of the business, it is important to understand the differences between them.
Differences between S-corporations and C-corporations
One of the main differences between the two types lies in how they are taxed.
S-corporations are known as pass-through entities. This means the corporation itself does not pay taxes. The profits and losses are taxed on the owners’ individual tax returns.
C-corporations pay a corporate tax based on the profits and losses of the company. The shareholders pay an individual tax on the dividends they receive from the corporation for the tax year.
Another big difference between the two is the rules regarding shareholders.
S-corporations are limited to having 100 or fewer shareholders. These shareholders must be individuals who are U.S. citizens.
There are no restrictions on who can be shareholders in C-corporations. They can have as many shareholders as they wish and the shareholders can be other companies or individuals who are not U.S. citizens.
Having a good business structure and well-written corporate documents is important for the success of the business. Experienced attorneys understand the legal aspects and may be a useful resource.