Types of Corporations (C Corp, S Corp)

• C Corporation (C Corp): A standard corporation subject to corporate income tax.
• S Corporation (S Corp): A special type of corporation that allows profits (and some losses) to be passed directly to the owners’ personal income without being subject to corporate tax rates.

Pros and Cons

Pros:

• Limited liability protection.
• Ability to raise capital through stock sales.
• Perpetual existence.

Cons:

• Complex and expensive to establish and maintain.
• Double taxation for C Corps (corporate and personal tax on dividends).
• Regulatory and compliance requirements.

Real-World Examples

Example: John’s software company is structured as a C Corp. This allows him to attract investors by selling shares of the company. However, the company faces double taxation on profits, which is a significant consideration for John when distributing dividends.