For many business owners, structuring their company as a corporation is a natural part of growing and expanding. Corporations also limit liability under commercial law. However, business owners must determine whether they should organize as a C-corp or S-corp. Here are a few factors to consider to make your decision.

C-Corp

A C-corp is the standard option for most businesses. Corporation shareholders elect a board of directors to lead the business operations. Shareholders then receive dividends based on the company’s profits and must issue stock.

C-corps generally have more flexibility for how they can sell shares of their stocks. While the shareholders own the company, most of the day-to-day decisions are left to the board of directors and C-suite executives like the CEO or CFO. Even foreign individuals can hold stock in these companies, which makes it easier to raise venture capital funding.

C-corporations must deal with additional taxes under commercial law. Not only are the business’s profits subject to corporate taxes, but any dividends issued to shareholders are also taxed as personal income. However, C-corporations can claim tax deductions when offering health insurance and other benefits.

S-Corp

After forming as a C-corp, a business must submit additional paperwork to structure as an S-corp. S-corps aren’t subject to corporate income tax. Instead, these organizations use pass-through taxation, in which business profits and losses are filed as part of a personal tax return.

S-corps are generally viewed as being better for small businesses because they’re limited to 100 shareholders or fewer. However, this can also restrict potential growth in the long run.

If you need assistance navigating commercial law to form your business, consult Donald L. Spafford, Jr., Attorney at Law in Honolulu, HI. From business transactions to bankruptcy filings, this attorney and his staff draw on over 30 years of legal experience to help you find the right solutions for your business. To learn more about his practice areas, visit him online, or call (808) 532-6300 to schedule a free consultation.