Difference Between C Corp and S Corp: Which Structure Is Right for Your Business?

Choosing the right legal structure is one of the most important decisions you’ll make when starting or growing a business. Two of the most popular corporate structures in the United States are C Corporations (C Corps) and S Corporations (S Corps). While both offer limited liability and share many foundational characteristics, they differ in how they are taxed, how they distribute profits, and what rules govern ownership.

In this guide, we’ll break down the difference between C Corp and S Corp to help you decide which one is right for your business—and how Smart Filing can make the process of incorporating simple, fast, and compliant.

What Is a C Corporation?

A C Corporation is a legal entity that is separate from its owners (shareholders). It is the default type of corporation when you incorporate under state law.

Key Features of a C Corp:

• Taxed as a separate entity (corporate income tax)
  
  
• Can have unlimited shareholders
  
  
• Allows foreign ownership
  
  
• Can issue multiple classes of stock
  
  
• Eligible for more deductions and benefits
  
  
• Subject to double taxation (corporate and individual level)
  
  

What Is an S Corporation?

An S Corporation is not a separate type of entity under state law, but a tax classification granted by the IRS. A corporation or LLC can apply for S Corp status using IRS Form 2553.

Key Features of an S Corp:

• Income and losses pass through to shareholders’ personal tax returns
  
  
• Avoids double taxation
  
  
• Restricted to 100 shareholders
  
  
• Shareholders must be U.S. citizens or residents
  
  
• Only one class of stock is allowed
  
  
• More limited in terms of who can invest
  
  

Key Differences Between C Corp and S Corp

Let’s explore the main areas where C Corps and S Corps differ:

1. Taxation

The most well-known difference between C Corp and S Corp is how they are taxed.

• C Corp: Pays corporate income tax on profits. If dividends are distributed, shareholders also pay personal income tax on those dividends—resulting in double taxation.
  
  
• S Corp: Income passes through to shareholders' personal tax returns, so the company itself doesn’t pay federal income tax. This helps avoid double taxation.
  
  

Smart Filing Tip: If you're a small business focused on minimizing taxes, S Corp may be more beneficial. For businesses aiming to reinvest profits or eventually go public, a C Corp may make more sense.

2. Ownership Restrictions

• C Corp: No restrictions on the number or type of shareholders. Can be owned by individuals, other corporations, or even foreign investors.
  
  
• S Corp: Limited to 100 shareholders, all of whom must be U.S. citizens or residents. No corporations or foreign investors allowed.
  
  

Smart Filing Tip: If you plan to attract venture capital or international investors, a C Corp offers the flexibility you need.

3. Stock Structure

• C Corp: Can issue multiple classes of stock (e.g., common and preferred).
  
  
• S Corp: Allowed to issue only one class of stock.
  
  

This impacts how you structure voting rights and profit distribution among shareholders.

4. Profit Distribution

• C Corp: Has more flexibility in how and when it distributes profits (dividends).
  
  
• S Corp: Profits (and losses) are distributed strictly based on each shareholder's ownership percentage.
  
  

5. Corporate Formalities and Compliance

Both C Corps and S Corps must:

• File Articles of Incorporation
  
  
• Adopt corporate bylaws
  
  
• Maintain a board of directors
  
  
• Hold annual meetings
  
  
• Keep detailed corporate minutes
  
  

However, S Corps must also:

• File IRS Form 2553 for S Corp election
  
  
• Stay compliant with eligibility requirements
  
  

Smart Filing makes compliance easy with built-in reminders, document filing, and expert support—so you can stay focused on your business.

Side-by-Side Comparison: C Corp vs S Corp

When Should You Choose a C Corp?

You may want to choose a C Corp if:

• You plan to raise venture capital
  
  
• You want to reinvest profits into the business
  
  
• You need to offer multiple stock classes (e.g., common and preferred)
  
  
• You intend to expand internationally
  
  
• You're preparing for an IPO or acquisition
  
  

When Should You Choose an S Corp?

An S Corp might be a better fit if:

• You want to avoid double taxation
  
  
• You're a small business with U.S.-based shareholders
  
  
• You’re focused on simplifying your tax obligations
  
  
• You don’t plan on seeking venture capital
  
  

How Smart Filing Helps with C Corp and S Corp Registration

Smart Filing is your trusted partner for business formation and compliance. Whether you decide on a C Corp or an S Corp, we make the process fast, accurate, and stress-free.

Why Choose Smart Filing?

• Step-by-step guidance for choosing the right structure
  
  
• Easy online application for incorporation
  
  
• Fast EIN (Employer Identification Number) issuance
  
  
• IRS S Corp election filing (Form 2553)
  
  
• Transparent pricing with no hidden fees
  
  
• Ongoing compliance alerts and document storage
  
  

🧭 Start your C Corp or S Corp registration today at Smart Filing and build your business with confidence.

Final Thoughts: Choosing Between C Corp and S Corp

Understanding the difference between C Corp and S Corp is essential for setting your business up for long-term success. Each structure offers distinct advantages depending on your business goals, tax strategy, and growth plans.

Need help deciding? Smart Filing can guide you every step of the way—from choosing the right business structure to filing the right forms with the IRS.

Related Resources:

• Register a C Corporation
  
  
• Apply for an EIN
  
  
• LLC vs Corporation: Which Is Better for You?
  
  

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👉 Start Your Corporation with Smart Filing