Many businesses start as simple, operated by single people, and low hierarchy with fewer legal duties. With time, the businesses grow, and the liabilities, taxes, structures, and structures become more complex. So the simple business structure is not a perfect fit. The company must be transparent if it is an S Corporation, C Corporation, or a Limited Liability Company (LLC).
The three structures are entirely different from one another. The main similarity is the concept of limited liability, which is a massive advantage to any type of corporation. It is dependent on the business. Either it wants to be an S Corp, C Corp, or LLC. The businesses must form a professional corporation or a professional limited liability company. The professional corporation can further be an S corporation or C corporation.
Usually, these corporations are for business owners in professional occupations such as engineers, doctors, etc. The corporations being professional corporations have many similarities with the non-professional parts, but a few differences exist. And so there are many differences between the S corporation and C corporation, traditionally and professionally.
Structure Of S Corporation And C Corporation
A considerable difference between S corporations and C corporations exists. As explained above, the two forms that a professional corporation can take are either become an S corporation or a C corporation. As the professional corporation is made, at the start, its form is naturally a C corporation form. The entrepreneurs can change the organization to an S corporation by using the form of IRS.
The main difference between S corporation and C corporation is the difference due to their tax structure. C corporations are considered to be the ones that pay tax infers Subchapter C of federal tax code. According to this chapter, the revenues are taxed depending on the tax rate being used now. The returns can also be filled quickly but only for personal earnings. So there is a disadvantage of double taxation as they are being taxed for the business and personal income.
Here, a corporation has a huge advantage as they are not liable to pay the tax on their business income, and so pass-through taxation is followed. The double taxation method is not implemented on them because they are being taxed once and not for the Haines’s income. But, can we say which structure is better? No, we cannot because it depends solely on the situation to choose which type is better. For example, companies that choose to become S corporations usually have increased numbers of shareholders, etc.
Difference Between C Corporation And Professional Corporation
In professional corporations, the owners are not subjected to pay legal charges made against their business except the charge was made due to a person’s mistake. And this is due to the type of work that is professional. But the traditional. Corporations are limited liability and so not subjected to pay any charges even if they are due to the owner’s mistake, which is a huge advantage.
Concluding all the above discussion, there is the taxation difference between the S corporation and the C corporation. There are differences between traditional and professional corporations due to the legal claims. But there is not any rule on what type of structure an organization should use. It entirely depends on the situation of the company that what structure suits it the most. It also depends on the corporation’s pros and cons and what is beneficial to them.