S Corps and C Corps
Welcome to The Jayson Law Group LLC’s series on The Legal Aspects of Starting a Small Business in New Jersey. Forming and running a successful business or corporation in New Jersey or elsewhere in the United States is typically the product of months or years of careful planning and execution. One such consideration is the form your business entity will take. In some situations one type of business structure may provide advantages over others such as tax benefits or additional flexibility. However in other circumstance certain forms of organization may be unavailable or there may only be a single structure appropriate for your company’s circumstances.
This video will discuss two forms of corporate structure: the S Corporation and the C Corporation. This video will define each and explore some of the differences between each corporate entity.
Be sure to keep in mind, however, that this video is the beginning in educating yourself regarding types of corporate forms. This video is not comprehensive nor does it contemplate your individual goals or circumstances. This video is not legal advice and it does not establish an attorney-client relationship. That said, those who are interested in forming a New Jersey business or reorganizing their company should consult with an experienced business attorney. Your attorney can explain the benefits and drawbacks of different corporate entity types and explain how it could affect your business.
What is an S Corporation?
A C Corporation derives its name because it is organized under subchapter S of the IRS tax code. A C Corporation is a pass through entity. This means that while corporate profits are not taxed, taxation occurs when the profits are distributed to the partners.
To qualify for an S corporation, the entity must be a domestic corporation and may only have allowable shareholders. Allowable shareholders are individuals, certain trusts, and estates but it may not include partnerships, other corporations, or non-resident alien shareholders. Other restrictions regarding an S corporation include that it may have no more than 100 shareholders. Finally, an S Corporation may only have 1 class of stock.
What is a C Corporation?
A C Corporation derives its name because its rule and requirements are delineated in subchapter C of the IRS tax code. A C- corporation is a non-pass through corporate entity. This means that, first, the corporation is taxed on its income. Then shareholders are taxed on their income from corporation. Unlike an S Corporation, there is no restriction on the number of shareholders. Likewise, there is no restriction on the number of classes of shares that can be offered. But, all members of the same class must be treated equally. Foreign companies can only operate as a C corporation.
Once again, this video should be considered merely as a starting point in your education regarding business entity types. By its very nature it cannot answer all questions regarding S and C Corporations, but it should serve to introduce the concept to interested individuals. If you would like to discuss what type of structure would be beneficial to your company, contact The Jayson Law Group’s Maplewood business attorneys and beyond by calling (908) 258-0621 or contact us online.
