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What is the difference between a C Corporation and an S Corporation?
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A corporation is a legal entity that is independent of its owners and has many rights that simulate a person. It is created by getting a charter from a state government. The owners of a corporation are referred to as stockholders and are protected from the corporation’s actions by a concept known as limited liability.
A C corporation is a type of corporation that has been in existence for many years. Its distinction is that the corporation is taxed as a separate entity from its owners. Its principal disadvantage can be a double taxation in the sense that the corporation’s income is taxed as are dividends paid out to the owners of the corporation. The same income is taxed twice.
An S corporation is another variation of corporations. It holds all of the same characteristics as a C corporation, but for tax purposes passes its income/loss on through to the individual stockholders allowing income to potentially be taxed at a lower rate and also avoid double taxation.