1. What Is a Corporation?
2. What Is an S Corporation?
3. S Corporation vs. Corporation: The Similarities
4. S Corporation vs. Corporation: Ownership
5. S Corporation vs. Corporation: Fringe Benefits
6. S Corporation vs. Corporation: Formation
7. S Corporation vs. Corporation: Shareholder Rights
8. S Corporation vs. Corporation: Taxation

S corp vs. corp is two different things in the business world. The two share many qualities, but differences are reflected with regard to ownership, fringe benefits, formation, shareholder rights, and taxation.

What Is a Corporation?

A corporation, acceptable in the 50 U.S. states and in the District of Columbia, is created by submitting a document called articles of incorporation and filing necessary registration requirements. The people who own a corporation are called shareholders, and they usually elect directors to monitor the operations. The shareholders earn from profits, called dividends, that are distributed to them based on the shares owned.

Corporations are required to adopt by-laws, issue stock, hold annual meetings of the directors and shareholders, keep written corporate resolutions for important decisions, submit annual reports to the state government, and settle any annual fees being regulated. Failure to do at least one of the mentioned items might result in the suspension of the corporation.

In most cases, a C corporation is the same as a corporation and is the default formation of a corporation, unless you put an S on your corporation. By submitting an IRS Form 2553 to the Internal Revenue Service (IRS), your corporation can become an S corporation.

What Is an S Corporation?

In general, S Corporations have structures similar to a corporation: the shareholders are the owners of the business and have the high-level decision making, there's an appointed board of directors that stirs the direction of the business, and executives who oversee the day-to-day operation of the business. Similar to a corporation, an S corporation also has liability protection, protecting the owners from responsibility for business debts and liabilities.

S Corporation vs. Corporation: The Similarities

As mentioned above, S corporations and corporations have a lot of similarities. Both have liability protection, which means that shareholders are not responsible for liabilities and business debts. For these to be created, formation documents are required by the state. These could be Articles of Incorporation or Certificate of Incorporation. The two have the same structure; shareholders who own the company, an elected board of directors who manage the direction of the business, and officers who monitor the daily business routines.

S Corporation vs. Corporation: Ownership

One of the major differences between an S corporation and a corporation is that the IRS has a list of restrictions for a corporation that elects an S corporation. The S corporations are only allowed to do the following:

  • Have less than a 100 shareholders
  • Issue not more than one class of stock
  • Have shareholders that are U.S. residents or have U.S. citizenship

An S corporation cannot be owned by a C Corporation, LLC, partnership, or another S corporation.

S Corporation vs. Corporation: Fringe Benefits

In terms of benefits, some of the benefits provided to the shareholders by a corporation, such as health, life, and disability insurance, are not taxable as long as the benefit is given to at least 70 percent of the employees. On the other hand, tax deductions for S corporation shareholders owning more than 2 percent of the stock are not allowed.

S Corporation vs. Corporation: Formation

All corporations start as a C corporation. By filing IRS Form 2553, a C corporation can be converted into an S corporation. To acquire an S corporation status, the form should be submitted not later than March 15. Moreover, corporations operating on a different fiscal year must file no later than the fifteenth day of the third month of the fiscal year.

S Corporation vs. Corporation: Shareholder Rights

For S corporations, since they are only allowed to issue one class of stock, there is only one kind of shareholder, and no hierarchy structure exists, which means that all have the equal voting power. In contrast, a corporation can have more than one strata of shareholders at the top, since C corporations are allowed to divide their voting rights by releasing different classes of stock.

S Corporation vs. Corporation: Taxation

A corporation pays their tax on the corporate level and then at the personal income level if the income is distributed to the corporation's shareholders. This entails that corporations are subjected to "double taxation." Taxes for S corporations are a bit different because shareholders are allowed to declare their income and losses on their personal tax return. The income and losses of an S corporation are shared among the shareholders and only subject to personal income tax, waving the corporate tax.

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