LIABILITY

No limited liability and company members could still be held responsible for unlimited losses by the company.

FORMATION

Generally, a corporation files articles of incorporation with the government, laying out the general nature of the corporation, the amount of stock it is authorized to issue, and the names and addresses of directors. Once the articles are approved, the corporation’s directors meet to create bylaws that govern the internal functions of the corporation, such as meeting procedures and officer positions.

TAXATION

• C corps are separately taxable entities.They file a corporate tax return (Form 1120) and pay taxes at the corporate level. They also face the possibility of double taxation if corporate income is distributed to business owners as dividends, which are considered personal income. Tax on corporate income is paid first at the corporate level and again at the individual level on dividends.
• S-Corps are pass-through tax entities.They file an informational federal return (Form 1120S), but no income tax is paid at the corporate level.The profits/losses of the business are instead “passed-through” the business and reported on the owners’ personal tax returns. Any tax due is paid at the individual level by the owners.
• Personal Income TaxesWith both types of corporations, personal income tax is due both on any salary drawn from the corporation and from any dividends received from the corporation.