Business Resources : Difference between a C-Corporation and an SCorporation
The primary difference between a C-Corporation and an SCorporation is that for federal income tax purposes, an S-Corporation is not treated as an entity. All profits and losses of the organization flow through to individual shareholders inaccordance with their percentage ownership. For state income tax purposes, an SCorporation may or may not pay some income tax.
In order to become an S-Corporation, a person or group must first organize a regular CCorporation as discussed above, and then promptly file an election to become an SCorporation
with the Internal Revenue Service (Form 2553). The time for filing is generally two and one-half months from the earliest of the date of organization, the date the corporation first had shareholders, the date the corporation started doing business, or the date it first had
assets. A corporation may also file for an S-Election at the beginning of any tax year,
generally through mid-March.
An S-Election is not automatically granted by the IRS. In order to qualify to be an SCorporation
a corporation must have no more than 35 shareholders, none of which can be partnerships, corporations, tax exempt organizations or nonresident aliens. In addition, an S-Corporation can only have one class of stock. If these basic requirements are met and maintained then a corporation will more than likely qualify to be an S-Corporation. If at any time a corporation does not meet these requirements, then it will lose the tax treatment afforded to S-Corporation and will be taxed as a C-Corporation.
All other general rules applicable to C-Corporation also apply to S-Corporations.?
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