The Corporation

The corporation is part of the fabric of American businesses and industry. In fact almost all public companies are registered as public corporations. In fact, the LLC cannot be a publicly registered company traded on a stock exchange. No state places limitations on the maximum number of members an LLC may have. Legally, an LLC could have thousands of members. The one corporation that places limits on the number of members is the S Corporation. S corps can only have no more than 100 shareholders.

The C Corporation

In all 50 states, when you register a corporation it is setup at the state level as a C corporation. This type of corporation is a stand alone entity, and it is responsible for paying taxes each year. This is an important fact about the C corporation. The C corp is really like a person, because just like you and I, the C corp, must pay it's own tax. An easy way to get your head around this, is to think about Microsoft. The founders of Microsft are no longer employees of the company, and in fact there are thousands of shareholders who essentially own the company. So who is responsible for paying the taxes? The company is, and the managers of this company are responsible for making sure the right amount of taxes are paid. So this same concept is passed down to the smaller C corporations, it is exactly the same concept. The corporation is responsible for having managers who will make the payment of taxes to the IRS.

The S corporation

The S corporation is a smaller company corporation, that has some benefits and limitations that make it unique from the standard C corp. First, there is a limit on the number of shareholders at a maximum of 100 shareholders. Next, the S corp is similar to an LLC in that it too is a pass through entity. This means that they company is no longer responsible for taxes, and instead the shareholders are responsible for paying the tax. This major change actually provides a great benefit for the small business owner. This pass through taxation is so important because it helps the shareholders avoid double taxation.

The issue of double taxation generally applies to C corporations. This can occur when a business if first taxed at the corporate level for income. Then when the shareholders get distributions of income, this income received at the personal level is taxed again. This is effectively a double tax on the same amount of money earned. However, structurally it is not the same income because we are dealing with two different taxable entities.

Frequently Asked Questions

  1. Corporation Learning Center