All corporations are created as C corporations. If the shareholders meet certain criteria they can choose to become an S corporation, and avoid the double-taxation of the C corporation.

IMPORTANT THINGS TO KNOW

• The “tax statuses” are defined by federal law but corporations and LLCs are formed by state governments, each of whom have their own laws and regulations.
• Many states require a separate filing to get S status in that state
• Changing tax status is a one-time thing to do. It is very expensive to reverse a change.
• Some deductions available to C corporations are not available to S corporations
• S corporations cannot be a subsidiary of another company
• S corporations can only have one class of shares