There are many differences between “C” corporations and “S” corporations. The first
difference between the two is how they are taxed by the IRS. C corporations are subject to
double taxation if owners of corporation are also paid dividends. This means that the
stockholders are taxed on their gains as well as the corporation having to pay tax on the
same income. S corporations are only taxed at the stockholder level.
Another main difference between the two is the limitations on the stock and who can be
owners. S corporations are allowed to have no more than 100 stockholders. With C
corporations there is no limit. They are also not limited to only one type of stock as S
corporations are neither.
S corporations would be best for small to medium sized companies that are more likely to
be owned by the stockholders. This would give them the benefit of single taxation while
still allowing the owners to keep the personal liability limitations that having a corporation
affords.
C corporations would be best for the larger companies. These companies are less likely to
have primary stockholders be owners. They would also have the increased flexibility of
many types of classes of stocks and no restrictions on who can own stock other than they
have to be citizens of the United States.
Berk, Jonathan, & DeMarzo, Peter (2011). Corporate Finance. Boston, MA: Pearson
Education.