Differences Between C Corporations and S Corporations
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Differences between C Corporations & S Corporations
Many people are confused as to exactly when a regular corporation (C Corporation) becomes an S Corporation. It is commonly thought the S Corporation election is made at the time the corporation is originally formed. That is not correct. The IRS allows 75 DAYS FROM THE DAY OF INCORPORATION to file the S Corp Election
When a corporation is originally chartered by the state, it exists as a C Corporation. If you do nothing more after forming your corporation, it will remain a C Corporation. A C Corporation becomes an S Corporation only when, with the consent of all shareholders, special tax treatment (“pass-through taxation”) is sought by filing Form 2553 with the IRS in accordance with Subchapter S of the Internal Revenue Code.
The critical distinction is that an "S" Corporation generally passes its taxable income or loss directly through to the shareholders while a "C" type corporation will pay taxes on the corporate income directly.