Corporation guide
Every corporation is formed the same way under state law. What you choose is how it's taxed. Here's how the two options differ, who each one suits, and how to incorporate in your state.
The corporation pays its own federal income tax at a flat 21%. Shareholders pay tax again on dividends.
An LLC or corporation that elects S status with IRS Form 2553. Profits pass through to the owners' personal returns.
How to incorporate
Form the corporation first. If you want S status, the election comes after you have an EIN.
Find your state
Each state has a C corporation guide and an S corporation guide, with that state's fees, reports and tax rules.
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No. Both are corporations under state law, formed the same way. The difference is federal tax: a C corporation pays its own income tax, while an S corporation has elected with the IRS to pass profits and losses through to its shareholders.
Yes, if the corporation meets the S requirements, by filing Form 2553. Converting an existing C corporation can trigger special taxes, such as the built-in gains tax, so plan the switch with a CPA. An S corporation can also revoke its election and become a C corporation.
A C corporation. Venture investors usually require preferred stock and often invest through funds or companies, and S corporations can't have either. C corporation stock may also qualify for the Section 1202 small business stock exclusion.
Often an S corporation, or an LLC taxed as one. Profits pass through to the owners, and owner-employees pay payroll tax only on a reasonable salary rather than on all of the profit.
Yes. Corporations adopt bylaws, issue stock, hold director and shareholder meetings (or act by written consent) and keep minutes. LLCs have far fewer formalities.
Yes. A single person can be the only shareholder, director and officer of a corporation in most states, and a one-owner corporation can elect S status.