You will find that a C Corp has its advantages as well as an S Corp, all which leads to the question – “Can a C Corp Own an S Corp? The answer to this question is “No.”
However, an S Corp can own a C Corp. So, don’t get things confused. Yes, it is true – S Corps can own C Corps, but, because of the framework of a C Corp, owning an S Corp cannot be done.
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To better understand the nuances between these two entities, you need to see how each is set up. I can also assist you, as well as my legal team, in incorporating your business.
You only need to book a call to speak to us here: https://mollaeilaw.com. That way, you can get more detailed information as to what we can do for you in setting up a business structure that will help you grow and make money.
So, let’s review the differences between the C Corp and S Corp in this article. That way, you can learn why an S Corp can own a C Corp, but you cannot be a C Corp and own an S Corp.
Can a C Corp Own an S Corp in Rare Instances, and, If So, Why Not?
If you want to know, “Can a C Corp Own an S Corp?” the answer it still “No.” This is because a C Corp, simply lacks the flexibility to do so while an S Corp is a light example of the traditional corporate structure.
An S Corp is a subchapter filing of a C Corp, so the rules, with respect to taxation and set-up, are less stringent.
However, that does not mean a C Corp cannot own an LLC (a legal liability company) as a subsidiary. In fact, the choice for this type of ownership can be quite advantageous from a liability standpoint.
If a third-party claim arose, the parent, or C Corp, did not participate in the subsidiary’s operations, it would not be subject to or at risk for the claim.
Can a C Corp Own an S Corp? Looking at the Structure of Both Entities
To learn why you have to answer “No” to the question, “Can a C Corp Own an S Corp?” you need to review the structures of both entities.
A C Corporation is the most common type of corporate entity in the U.S. This type of structure offers unlimited growth through stock sales, and therefore can assist your business attract venture capitalists or wealthy investors. A “C” Corporation can have an unlimited number of shareholders, which makes it even more attractive to any fledgling company hoping to make money.
Benefits that make a C Corporation stand out it is limited liability for directors, shareholders, employees, and officers, and its perpetual existence. Even if an owner dies or leaves his or her position, the corporation will not fold.
Companies that become incorporated receive more respect in the business community, and have more of an opportunity to grow, over time.
While a C Corporation can take on an unlimited number of shareholders, it still must register with the SEC when the number of shareholders reaches 500, or when the business grosses $10,000,000 in assets. This ruling falls under the 1934 Securities Exchange Act.
With respect to taxation, corporations can deduct all business expenses to reduce the tax they owe.
While you will enjoy unlimited growth by incorporating your business as a C Corporation, you still need to be aware of some of the drawbacks. C Companies are subject to double taxation.
Therefore, taxes are assessed at the company level and, again, assessed on shareholder dividends.
It is also expensive to incorporate. You have higher costs when filing Articles of Incorporation. Corporations must also pay fees to the state in which they operate.
Both C Corporations and S Corporations have limited liability protection and both require the filing of Articles of Incorporation. Both entities also have shareholders, directors, officers in their formations. Where they differ is in the complexity of their tax structures.
While C corporations must pay taxes twice as an entity, S corporations enjoy pass-through taxation. Also, S Corps can only limit shareholders to 100 people. They also must be owned by citizens of the U.S.
Can a C Corp Own an S Corp? If C Corps Cannot Own S Corps – Can LLCs or Partnerships Own S Corps?
When answering the question, “Can a C Corp Own an S Corp?” you also have to consider other types of entities. C Corps are not the only business entities that cannot own S Corps. Limited liability companies and partnerships cannot own S Corps either.
For instance an S Corp. can indeed be a shareholder in a C Corp. However, it cannot be a total shareholder. It cannot own any more than the C Corp.
Therefore, there are legal stipulations that exist, even when you own share, as an S Corp, in a C-incorporated company. However, you do receive tax benefits if you happen to own the C Corporation.
If you wish to set up a traditional C Corp, you will need to choose a unique legal name and register it with the Secretary of State. You also will need to draft Articles of Incorporation and submit them to the Secretary of State.
Stock certificates must be issued to the initial shareholder, and you will need to apply for business licenses and certificates that apply to your field or industry.
An SS-4 must be filled out to apply for an Employer Identification Number (EIN). This number will allow you to set up a business bank account and hire employees. You will also need to apply for any other identification numbers, as they apply to your jurisdiction.
In these cases, the ID numbers you will need apply to paying taxes, such as disability, unemployment, or other payroll taxes.
What Happens Next?
Whenever anyone asks, “Can a C Corp own an S Corp?” they are frequently mystified when I tell them the answer is “No.”
However, I can help you see what is and what is not possible when you set up corporate entities. You only need to contact me for a consultation. Email firstname.lastname@example.org today for further information.
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