C corps & S corps

Prof. Fershee--

During the last class period you discussed "C corps" and "S corps." I know this question is likely irrelevant for this semester, but for those of us without any "business background" could you give a general definition/description of these types of corporations and some of their advantages/disadvantages?

Professor's Response:

We'll talk about this some more in class, but the basic difference is that a C corporation is taxed as an entity, and then distributions to shareholders (dividends) are taxed separately. If the corporation elects to be taxed as an S Corp, the taxation is the same as partnerships, LLCs, and sole proprietorships, which are taxed as "pass through" entities. This means the owners are taxed directly on their ownership shares, rather than paying taxes as an entity. (Note that LLCs and S Corps must file a form indicating ownership shares.)

The main benefits of a C Corps include certain employee benefit programs and carry forward of losses. S Corps can be taxed as a pass though, but can be restrictive in terms of who can own the entity.