What's the Difference between S Corps, C Corps, LLCs & General Partnerships?

There are several forms of business entity to choose from when starting a business in the U.S. It is important to note that each of the different forms have different tax implications, along with different levels of liability. The four types of business entities that will be discussed are the C corporation, S corporation, general partnership, and limited liability company (LLC).

C Corporation

A C corporation is what most people know as a regular corporation. This is the "dominant form of business organization" (Spiceland et al.). A C corporation is considered a separate legal entity which has the right to buy property, hire employees, and sign contracts. The C corporation is owned by its stockholders. However, stockholders have limited liability and are not personally liable for any business debts, torts, or other liabilities.

C corporations are not flow-through entities. The C corporation form of entity results in double-taxation. The reason for this is as follows. First, the C corporation is taxed as a separate entity using corporate income tax rates. The C corporation must file a Form 1120 with the IRS each year to report the income. Then, any dividends paid to stockholders are taxed again at the stockholders' tax rates, and each of the stockholders must report this income on their year end individual income tax returns.

Also important to note is the benefit of perpetual existence. A C corporation is capable of continuing indefinitely. Its existence is not affected by the death or incapacity of shareholders, directors, or officers of the corporation.

S Corporation