S Corp vs C Corp
Compare S corp and C corp tax structures — pass-through vs. double-taxed corporate income.
Overview
An S corp is a pass-through entity — profits flow to shareholders' personal returns. A C corp pays corporate tax (21%) and shareholders pay tax again on dividends. S corps avoid double taxation but have ownership and shareholder restrictions; C corps can scale and raise capital without those limits.
Choose S Corporation when...
Choose S corp if you have a closely-held US business with ≤100 shareholders and want to avoid corporate-level tax on profits.
Choose C Corporation when...
Choose C corp for VC-backed startups, businesses with foreign or institutional investors, or companies planning to retain earnings at 21%.
Our Verdict
For most profitable closely-held businesses, the S corp election (made on a regular corporation or qualifying LLC) saves taxes vs. C corp double taxation. The C corp wins if you're raising venture capital, want to retain earnings inside the company at the 21% rate, or have foreign or institutional shareholders that can't qualify under S corp rules.
Frequently Asked Questions
What is the difference between S Corporation and C Corporation?
An S corp is a pass-through entity — profits flow to shareholders' personal returns. A C corp pays corporate tax (21%) and shareholders pay tax again on dividends. S corps avoid double taxation but have ownership and shareholder restrictions; C corps can scale and raise capital without those limits.
When should I choose S Corporation over C Corporation?
Choose S corp if you have a closely-held US business with ≤100 shareholders and want to avoid corporate-level tax on profits.
When should I choose C Corporation over S Corporation?
Choose C corp for VC-backed startups, businesses with foreign or institutional investors, or companies planning to retain earnings at 21%.
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