I think a corporation is the right legal structure for my business. Should I form an S Corp or a C Corp?

Whether you should form an S Corp or a C Corp usually comes down to how you want the corporation to be treated for federal income tax purposes.

S corps are pass-through taxation entities, which means that S Corps file an informational federal return (Form 1120S), but no income tax is paid at the corporate level. This means that the profits and losses of the business are “passed-through” to the business and reported on the owners’ personal tax returns. As such, any tax due is paid at the individual level by the owners.

On the other hand, C Corps file a corporate tax return (Form 1120) and pay taxes at the corporate level. This means that corporate income tax is paid first at the corporate level and again at the individual level on dividends. As such, C Corps possibly face double taxation if corporate income is distributed to the owners as dividends, which are considered personal tax income.

An S Corp cannot have more than 100 shareholders, meaning it can’t go public and is limited in its ability to raise capital from new investors. In contrast, a C Corp can have as many owners or shareholders as it wants or needs and can go public.