If you are thinking about founding a business startup as a corporation, you’ll need to make many decisions concerning the formation of the company before you can officially found your startup. How do you figure out which kind of corporation is best for your company’s needs? When looking into legal entities, you may want to consider S-corporations or C-corporations. After reviewing this introduction on the basics of both models, consider connecting with an experienced Virginia business formation lawyer from Dale Jensen, PLC to explore your options in greater detail. Once you have all the information you need, you can make an informed decision concerning your company’s legal structure.
Basics of Each Model S-Corporation
An S-corporation may also be referred to as a subchapter S corporation. These companies are taxed on the personal returns of shareholders, not at the corporate level. This model is bound by similar compliance obligations as C-corporations are. C-corporations are standard, traditional corporations. Shareholders have stock in the company and share ownership of the business. Like the S-corporation, C-corporations have to pay fees, issue stock and hold share and director meetings.
Differences Between S and C-Corporations
When it comes to the differences between S and C corporations, there are three main categories to consider. These categories include:
C-corporations use corporate tax rates, whereas S-corporations allow business profits and losses to be reported on an owner’s personal income tax returns. When it comes to business formation, C-corp is the most common and default type of corporation. It is therefore important to speak with an experienced Virginia business formation lawyer about the potential benefits and drawbacks of each approach. Would your company be best served by being an exception to the default rule? Or would a traditional model better serve your mission? A Virginia business formation lawyer can help you answer these questions.
One of the biggest differences in terms of business structure involves restricted corporate ownership. C-corporations are more flexible than S-corporations. If you want to expand your business or sell it to another business, then you might want to choose a C-corporation for its flexibility. C-corporations do not restrict business ownership. You can have as many shareholders as you want and benefit from having different classes of shareholders.
S-corporations, on the other hand can only have up to one hundred shareholders. These shareholders must be citizens or residents of the United States. C-corporations allow for foreign investors. S-corporations are also limited to one class of stock. You can only have one type of shareholder, rather than there being a hierarchy between shareholders. Ownership classifications, financing limitations, and taxations issues are arguably the most important reasons to carefully consider both models before you land on one or the other. It may help to consult with a Virginia business formation lawyer ahead of time to figure out which formation structure best suits the mission of your startup.