When it comes to tax ID filing service, the necessity of differentiating between a C-Corp and an S-Corp arises when the entity or individual engaged in business is confronted with the issue of double taxation.
An S-Corp is also known as “pass-through entity.” This means that the business itself is not taxed and the tax liability is only limited to the personal income of the respective shareholders.
In contrast, in C-Corporations, the corporation is treated as an individual capable of engaging in business and consequently, also capable of being taxed. Shareholders of C-Corporations are thus taxed twice – first is thru the corporate revenue and second is thru the individual shareholder’s profit.
Advantages of S-Corp
There are a few good reasons why businesses opt to be an S-Corp. First is the fact that the assets of the business are protected. Second, the liability of the individual shareholders is limited.
Also, it’s easier to transfer ownership in S-Corp businesses compared to corporations.
To register your business under S-Corp, all you have to do is to fill out Form 2553 and make sure it is signed by all the shareholders of the business.
Going Through the Process
For those businesses who want to acquire the corporation status, the process is quite tedious. The corporation must file Articles of Incorporation with the State Secretary and must pay the applicable filing fees. After this, the business must choose a business name and have the same registered. Once done, they must secure an Employer Identification Number (EIN).
Double levy of taxes is the main reason why most businesses evade registration as a corporation. However, the benefits outweigh the risks.
In corporations, liabilities of the individual shareholders are limited. The corporation can also exist for as long as the shareholders want. There is no limit to its lifetime.