Difference Between a C-Corp and S-Corp in Texas

If you have a small business in Texas, you need to know the difference between a C-Corp and an S-Corp status for your company. There are advantages and disadvantages to each and the choice you make can affect your tax status. In order to make the most informed decisions about which corporate structure is best for your small business, you need to talk to an expert. In Texas, you will always get expert help from the professionals at DRDA, P.C., at www.drdacpa.com. Contact the expert business consultants at DRDA, P.C. today to find out how your choice of corporate form can even help finance your small business. In the Houston area, call (832) 615-2887 or toll free at (888) 588-2022. In the Galveston area, you can call (409) 765-9311 or toll free at (800) 819-1936.

What is a C-Corp?

A C-Corporation is the most common type of corporation. Your business can have an unlimited number of shareholders, which allows you as many investors as your business requires. One of the primary advantages of a C-Corp form is that all shareholders are protected form personal liability pertaining to business debts or lawsuits.

A C-Corp allows simple stock transfers with few restrictions or limitations. If your company may be interested in publicly trading stock, a C-Corp is the only option you have, as an S-Corp or an LLC does not allow public offerings of stock.

The major disadvantage to the C-Corp status, however, is that it is a double-tax entity. This means that the earnings of the business are taxed and then the dividends paid to shareholders are also taxed.

What is an S-Corp?

Many small businesses prefer an S-Corp election for their corporate structure. It is similar to a C-Corp; in fact, an S-Corp is originally formed as a C-Corp when the articles of incorporation are filed with the Secretary of State and changes to the S-Corp form when paperwork is filed with the IRS.

The primary advantage of an S-Corp is that shareholders profits are not taxed to the business. Employee salaries are subject to employment tax and any officers who perform daily job duties have to receive a reasonable salary after the company is earning a profit and after the officers’ initial invested has been repaid.

Not all businesses are eligible for the S-Corp status. The following list of ownership requirements must be met:

·         There can be no more than 100 shareholders

·         Shareholders must be individuals (or married couples, which count as one shareholder) and cannot be other corporations or LLCs

·         Shareholders must be residents of the United States

·         Banks, thrift institutions, insurance companies and domestic international sales corporations (DISC) cannot be S-Corps.

·         Each shareholder must agree to the S-Corp

·         There can be only one class of stock in the company

·         No more than 25% of the company’s gross corporate income can come from passive income.

Which Choice is Best For Your Small Business?

In order to make the best choice for your small business your wisest decision could be to contact DRDA, P.C., at www.drdacpa.com. The business consultants at DRDA can help you determine what will work best for your small business. They can also show you the advantages of a BORSA plan for your small business retirement option. The BORSA (Business Owners Retirement Savings Account) can offer your small business some major financial advantages including using your C-Corp status, along with your 401(k) plan to finance your small business start up, franchise or business property purchase. To find out how a BORSA plan, which requires a C-Corp status, can help your small business get off to the best start, visit DRDA, P.C. at www.drdacpa.com or call (832) 615-2887 or toll free at (888) 588-2022 in the Houston area. In the Galveston area, you can call (409) 765-9311 or toll free at (800) 819-1936. Call or visit today and move forward with your small business dreams.