3 ways an S corp is different from a C corp

On Behalf of | Jan 12, 2023 | Business Law |

S corporations are very similar to C corporations in terms of their setup and the protection they provide against personal liability for business debts. The main differences between the two are the tax advantages that an S corp offers, and even these are not as pronounced as they once were.

Nevertheless, Chron.com describes some of the ways that an S corporation is different from a C corporation. These are typically restrictions that apply to an S corp but not to a C corp.

1. Only individuals can own an S corp

General partnerships and limited liability companies can have ownership of a C corporation. Sometimes, the owner of a C corp is another corporation. However, only individuals can own S corporations, not other companies.

2. Foreign investors cannot buy shares in an S corporation

Anyone who buys a share of an S corporation has to be either a citizen of the United States or a lawful permanent resident. A naturalized citizen would be eligible, but someone who is still a citizen of a foreign country would not be able to purchase shares in an S corp.

3. There are limits on the number of shareholders an S corporation can have

The maximum number of shareholders allowed in an S corporation is 100. This is in contrast to C corporations, which do not have limits on the number of shareholders they can have.

When a person starts a new corporation and does not specify whether it is a C corp or an S corp, it becomes a C corp by default. If the company meets the requirements, the owner can change it to an S corp later if desired.