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S-Corp vs C-Corp -- what are the differences?

If one decided to start a business in California, they have a lot of decisions to make that will affect one's company for years to come. One of the primary decisions to make will be what legal structure to use. Generally, corporations are more formal than other types of business structures, including sole-proprietorships, LLCs and partnerships. If one decides to start a corporation, they should know that they have two main options: a C-Corporation or S-Corporation. The two types of corporations vary in many ways, especially when it comes to taxes.

The C-Corp is generally more popular than the S-Corp, due to the fact that it has different eligibility requirements than an S-Corp. if they pay dividends, a C-Corp will likely face double taxation on their profits at both the corporate level and the shareholder level. Only after they pay their profit taxes will they get to pay dividends to shareholders. The shareholders will then be taxed on their individual returns.

S-Corps have their own qualification requirements, including that it must be domestic, have 100 shareholders or less, and only one class of stock. All shareholders have to agree to subchapter S treatment before declaring it with the IRS. S-Corps are generally pass through taxation entities meaning that the S-Corp's profit goes to its shareholders and is only taxed on the shareholder level.

As one starts a business, it can be difficult to keep track of the various types of business structures and the pros and cons of each type. If one needs assistance deciding which structure is right, consider meeting with a qualified business and commercial law attorney.

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