Chapter 1, Problem 5P

Summary Introduction

Organization:

An organization is a type of entity where in a group of people come together to achieve a common goal. A business organization exists basically in four types of forms namely sole proprietorships, partnerships, limited liability companies, and corporations.

Corporation

A corporation is a separate legal entity which is separate from its owners. It is an artificial body and continues to exist even after the death of its owners where in such case the ownership is transferred. The owners are separate from the legal body and hence they are not liable for any obligation of the corporation individually. Similarly, the corporation is also not liable for any of the personal obligations of its owners.

S Corporation

S Corporations are those forms of corporations that purposefully elect the subchapter S tax treatment because this is how they are exempted from double taxation. This U.S. Internal Revenue Service’s tax code allows these S corporations to be taxed only once and reduces the double taxation burden from the shareholders.

C Corporation

The C corporations are those organizations that do not qualify for the subchapter S tax treatment of the U.S. Internal Revenue Service and are subject to direct taxation because they do not capacitate certain criteria that are mandatory to enjoy the benefits of subchapter S tax treatment.

To Identify:

The difference between an S corporation and a C corporation.