What is a C Corporation? The biggest difference between a C Corporation and the other two discussed here is that a C corporation is subject to federal income tax and pays federal income tax based on its income. The Corporation is taxed separate from its owners.
The shareholders of a C Corp are not subject to federal income tax unless the corporations pays them. Thus, there may be a “double tax” for those that own the corporation and then receive distributions from it.
What is an S Corporation? Sometimes known as a “flow through” or “pass through” corporation as the taxable income, losses, deductions and credits of the corporation are distributed amongst the shareholders. The S Corporation is not subject to federal income tax as that is the responsibility of the corporation’s shareholders.
Unlike a C Corporation, there are some restrictions an S Corporation must follow.
What is an LLC? Similar to an S Corporation, an LLC’s taxable income passes to its owners to pay the tax. Members of an LLC are treated as partners for tax purposes. One of the bigger allures of this corporation structures is the limitation on personal liability for the LLC.