A corporation is a business entity that allows the business to run separately from the owners.  The stock holders are the owners of the company and they vote in the board of directors.  In small corporations the board of directors are often the share holders themselves, but as the company gets larger this doesn’t have to be the case.

In all corporations certain requirements are required in order to maintain evidence that the business is being run for the gain of the business and not as a cover for personal conduct.  Things like annual reports, board of directors meetings, and meeting minutes maintained are not just good business, but actually required or else a person suing for damages or a creditor seeking repayment can “pierce the corporate veil” and demand payment from a shareholder’s personal assets.

So what is the advantage or disadvantage of the s corporation vs c corporation?  The main advantage to the s corporation is the profits are passed through to the individual share holder without a double taxation.  The corporation itself pays no income taxes so there is no double taxation.  This is not true for the c corporation which has to pay income taxes as well as the distributions to shareholders are taxed with a dividend tax.

The other big difference is the s corporation can only have a max of 75 owners who are all individuals.  The c corporation can have as many owners as entities that buy shares, plus businesses or other corporations can hold shares of the c corporation, not just individual people.

The main reason a c corporation becomes a c corporation is so they can issues shares to the population to raise funds without being limited to 75 people.  However, there is no reason you can’t convert your s corporation to a c corporation when you are large enough and ready to relinquish some control.  Once you release your company to the public offering your corporation will likely take a new focus from following the mission statement the original management set forth to pleasing the share holders.  This can be tough for original owners and should be considered before the initial public offering.

If you have high income investors they usually would prefer a s corporation to start the business off with.  This is because the startup of a business is usually a losing proposition and they can deduct these losses off their personal income taxes versus waiting for profits in a c corporation to deduct.

The biggest, yet most difficult to prove, argument for an s corporation vs c corporation is the avoidance of employment taxes.  You do have to pay yourself a reasonable wage, but beyond that you just claim your profits as ordinary income tax.  While this sounds good there are lots of tax savings plans and social security benefits for paying employment taxes.  A talented tax accountant must be consulted with before setting your owner’s wages and determining which corporation you wish to form.