Frequently asked questions

1. What's the difference between a corporation and an LLC?

   Both protect owners so they're not personally on the hook for business liabilities or debts. Key differences include how they're owned (LLCs have one or more individual owners and corporations have shareholders) and maintained (corporations generally have more formal record-keeping and reporting requirements). Even though LLCs are considered easier to start and maintain, investors tend to prefer corporations.

2. What's the difference between a C corporation and an S corporation?

   The way you're taxed and owned, and how shares work.

   C corporation income is taxed twice—the business pays taxes on its net income, and then the shareholders also pay taxes on the profits they receive. With S corporation income, only the shareholders pay taxes on profits received.

   C corporations have no limits on how many people and who can own shares. S corporations are limited to 100 shareholders who must be U.S. citizens or residents.

   C corporation owners may get preferred stock—which comes with no voting rights but priority to dividends before common shareholders. S corporation owners can only get common stock which comes with voting rights.

   About 70% of our corporation customers choose to be an S corporation, but don't feel like any decision is final. You can always convert to a C corporation later.

3. How does forming a corporation protect my assets?

   It ensures that you and other shareholders aren't personally on the hook for company debts and liabilities.

4. Why do many corporations form in Delaware?

   Large public corporations or those planning to go public can benefit from things like Delaware's well-established and predictable body of corporate law—aka how courts tend to resolve business disputes. Venture capital firms and angel investors also often prefer Delaware corporations. However, most small businesses form in the state where they do business to avoid added costs and complexities.

5. What are shares, and what types are there?

   Think of shares as your piece of the ownership pie—and there are two main types (i.e. "common" and "preferred").

   Common shareholders have voting rights and can receive dividends if they're issued. Preferred shareholders have priority over common shareholders when it comes to dividends and payout claims (if the corporation becomes insolvent).

6. How can I go from an S corporation to a C corporation?

   You need majority shareholder consent to switch before you can change your status with the IRS.

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