What Is A C Corp? – Forbes Advisor

Although common, C-corps aren’t necessarily the best choice for a business designation. As always, it depends on the specifics of the business. Here are some of the other more common options:

S-Corp

Like a C-corp, an S-corp is composed of shareholders, directors and officers and follows the corporate regulations in order to enjoy the same protections from personal liability. An S-corp is distinct in that it avoids the double taxation situation faced by a C-corp. S-corps are considered “pass-through tax entities,” meaning income can go directly to shareholders without first facing a corporate income tax.

In essence, an S-corp combines the tax privileges of a partnership with the corporate protections of a C-corp. In exchange for these benefits, however, S-corps are subject to a number of regulations, including a maximum limit of 100 shareholders and strict rules about what types of entities can become shareholders.

Sole Proprietorship

If liability protections afforded by a legal separation of business and a single business owner are not important or desirable to a business founder, a sole proprietorship might be an appropriate alternative, given other specific circumstances are appropriate. Sole proprietorship is the simplest structure for a one-owner business, giving the owner few regulatory burdens and a high degree of control and flexibility. Without a distinct business entity, however, there’s no legal difference between the business’s assets, debts and other liabilities and those of the owner. Unlike a corporation, this means the owner is on the hook directly for any legal or financial failures of the business.

Partnership

Partnerships are similar to sole proprietorships when it comes to liability and taxes. A partner of a general partnership, like a sole proprietor, reports his or her share of income, expenses, credits, profits and losses on his or her personal tax returns, paying a personal income tax rate and assuming the business’s liability as his or her own. A limited partnership (LP) or limited liability partnership (LLP) may also be considered depending on the industry and other specifics.

LLC

A limited liability company balances the relative ease and flexibility of a partnership structure with the increased risk protection and tax advantages of a corporate structure. LLC owners (known as “members”) aren’t personally liable for business obligations. By default, members pay taxes in the same way as would owners of a sole proprietorship or general partnership. But an LLC can also elect to be taxed as a C-corporation or an S-corporation if it meets certain requirements. Many small business owners choose LLCs for the simplicity and flexibility this structure offers.

In order to establish an LLC, instead of filing Articles of Incorporation like a corporation, LLC founders must file Articles of Organization with whatever state agency manages business registration. Like a corporation, an LLC must list a registered agent.