A corporation is the business entity that most people think of when they think of a business. Seeing the Inc. or Corp. at the end of a business name conjures up images of well-known, successful businesses. Beyond that, though, corporations are seen as people in the eyes of the law. Just like an individual, a corporation can bring lawsuits, own property, and enter into contracts, among other things. Corporations have a perpetual lifespan, meaning that short of dissolution, corporations will persist indefinitely, allowing their shareholders to buy, sell, and trade shares for years to come. Speaking of shareholders, corporations, while sometimes thought to be owned by the board of directors, are actually owned by their shareholders and managed by the board of directors. Officers, such as the president, CEO, and CFO, run the corporation through its day to day activities, in turn delegating work to managers and other employees. In smaller corporations, a single person may hold several roles, as shareholder, board member, and officer.
S-Corporations, formally known as Subchapter-S Corporations after the tax code section which authorizes them, are very similar to C-Corps above. As far as similarities go, both are corporations and are inherently structured the same in the eyes of the law. However, S-Corps are designed with certain tax savings in mind—at the expense of the large amount of growth a C-Corp can experience. While all of the differences between the two are outside of the scope of this quick guide, the most important thing to keep in mind when comparing an S-Corp to a C-Corp is that with an S-Corp, you sacrifice the ability to grow to a very large size and issue a wide variety of stock for tax savings benefits.
Photo courtesy: ernestopletsch