The Differences Between C and S Corporations

C corporations and S corporations are similar in many ways. Both types of corporations are separate legal entities from the individuals who own them — a fact with important

In other ways, however, C and S corporations are very different entities. You'll want to carefully consider these differences before you decide which type of corporation to create.

C corporations:

• Can have an unlimited number of owners
• Can have individuals, other corporations, trusts, estates, and foreign investors as shareholders
• Can issue different classes of stock

S corporations:

• Can have no more than 75 owners
• Can have only U.S. citizens, estates, charitable organizations, employee stock ownership plans, and certain trusts as shareholders
• Can issue only one class of stock certificate

The setup process is similar in some ways for both C corporations and S corporations. For example, in both cases, the owners must file Articles of Incorporation and bylaws within their states, form a board of directors, issue stock certificates, and pay organizational taxes and filing fees. Both types of corporation also require employer identification numbers from the IRS.

Each state has its own rules and regulations concerning the setup of corporations. Check with an attorney to determine exactly how to set up C and S corporations within your state. While you're thinking about locale, find out more about how business laws very from state to state — you might find yourself reconsidering where to incorporate your business.

For more information on state corporate taxes, read State Annual Filings for Corporations.