Forming a business is both an exciting and stressful experience.  There are many decisions that a person(s) need to make concerning the business. This includes what type of business entity you want to register the business as.  Florida is a very business-friendly state and offers many options for businesses to consider. Below we will discuss the difference between a C Corporation and an S Corporation under Florida law.

What Determines if Something is a C Corporation or an S Corporation?

There are many reasons why a person(s) chooses to register their business as a corporation in Florida.  One of the first decisions you must make is whether to make your business a C Corporation or an S Corporation.  Registration of the corporation is done on the state level. However, federal tax laws typically determine which type of corporation it is.  As a rule of thumb, most corporations are, by default, a C-Corp unless they elect to act as an S-Corp.

What is the Difference in Tax Structure?

C-Corporations typically pay more in taxes than S-Corporations. As a C-Corp, both the company and the shareholders will pay federal income tax.  Whereas with an S-Corp, only the shareholders are paying federal income tax.  It is important to note, that this does not mean the tax liability of an S-Corp is less than that of a C-Corp.

 Is the Tax Structure the Only Difference Between a C Corporation and an S Corporation?

Beyond who is responsible for paying federal income taxes, there are other differences between a C-Corp and an S-Corp.

  • S Corporations only have individual shareholders. Whereas the shareholders of a C Corporation may be other businesses and/or partnerships.
  • C Corporations may have shareholders from anywhere in the world whereas S Corporation shareholders must be legal United States Citizens or Residents.
  • S Corporations are limited to 100 shareholders or less whereas C Corporations can have thousands of shareholders.
  • C Corporations are allowed to issue different classes of stock whereas S Corporations can only issue one class of stock.
  • S Corporations allocate profits and losses based on ownership interests.
  • Lastly, S Corporations must have shareholder elections which can disrupt business operations

Which Corporation Structure is Best For My Business?

As you can see there are both advantages and disadvantages to both types of corporate structures.  Contact Dowd Law for a consultation and we will discuss with you your goals and visions and advice you on the best course of action to take.