In this article, we take a look at how you can launch a successful career and join one of the three million real estate agents already active across the US.
Why Become A Real Estate Agent?
As with most industries, there are many reasons people get into real estate. The primary appeal is the fact that there are always new properties and clients to work with. Once you have a real estate license, you can often become your own boss within just a few years and decide when you work, which clients you take on, and how much commission you charge for your services.
The money can be good, too. The average real estate agent salary is $77,383 per year; if you move onto brokering, you could earn more than $89,000 per year, with top agents taking home pay packets of more than $200,000.
Getting into the field is relatively easy. You will need some qualifications, but not many – certainly not a college degree. And by the end of the process, you will have a salary that would take years to attain in other industries. You don’t have to work full time, either: A part-time real estate agent can still earn decent money.
Steps To Becoming A Successful Real Estate Agent
The path to becoming a real estate agent depends on the state you live in. However, here’s the general sequence in which you will need to do things.
Research Your State’s Licensing Requirements
The US does not have a national real estate license. Instead, such licenses, if they exist, are administered at the state level. You’ll want to begin the process by researching your state’s regulatory office website. You can either search for this directly on Google, or look for the relevant state via a directory.
States have specific requirements for agents concerning:
Background checks and fingerprinting
In some states, you might need a high-school diploma to begin the process. If you do not have one of these, you may need to pass the GED first.
Some states allow you to earn your license in one state and use it in another. However, you will need to check the rules for your particular state to be on the safe side, particularly if you plan to rely on demand from a neighboring state for business.
Take a Prelicensing Course
Checking state requirements and doing research are generally free. However, once you begin the licensing process, you’ll need to pay some fees, as most states require you to complete an accredited prelicensing course. Real estate agent training prepares you for the job and reduces your likelihood of making a severe mistake that harms your clients.
The number of hours you need to rack up to become eligible for an exam depends on the state. In Texas, for example, students must complete more than 180 hours of coursework before becoming eligible for the test. In New York, the figure is only 75 hours, and in Florida, just 63.
How you complete these hours is largely up to you. For instance, you can take courses online, at community colleges, or a dedicated real estate school. It’s possible to become a real estate agent with no previous experience at all.
Don’t accept the first course you come across. Instead, think carefully about which environment would suit you best. Do you prefer learning by yourself in peace and quiet online? Or is it easier for you to absorb knowledge if you’re surrounded by other people? Remember, the type of interactions you have will impact how much information and knowledge you retain.
Real estate agent classes typically begin by teaching you the basic principles of facilitating property transactions. You’ll learn the meaning of terms such as “escrow” and “lien,” which don’t usually feature in everyday language. You’ll also get an education in the essential legal aspects of the business and your responsibilities as an agent. By the end of the course, you should be able to estimate the value of a property, understand all the steps involved in a transaction, and be in a position to offer clients guidance.
The cost of prelicensing courses is fairly reasonable. In most states, you’ll pay somewhere between $350 and $800, depending on the number of training hours required by the state. However, you may need to pay more if your state has particularly stringent prelicensing requirements.
After taking your prelicensing course, you have a fixed period to complete your exams. For example, in Florida, you’ll have two years. If you aren’t successful within that timeframe, you will need to retake the prelicensing course all over again.
Take Your Licensing Exam
To complete the exam for becoming a real estate agent, you’ll need to pay a fee, usually between $100 and $300.
Your course instructors will explain how to schedule the exam, but in general, you’ll first need to register with the appropriate board, schedule the exam date, and pay the fee for administration and invigilation. You can check your real estate agent eligibility requirements online or with your instructor to ensure you have completed enough course hours.
Most exams are completed online, in two parts:
A state-specific section covering your state laws
A national-level section covering general real estate principles
Exams are typically multiple-choice. The amount of time you have to complete the test varies by state, but you’ll typically get between 90 minutes and three hours to answer all the questions. Some states’ exams are more rigorous than others, posing anywhere between 60 and 100 questions. States break up each exam into smaller sections, and you’ll most likely have to attain a passing grade on each to qualify. If not, you may have to retake the exam.
States have varying rules for how many times you can retake the exams, and there’s usually a mandatory waiting period between retakes. The failure rate in some states is relatively high, too: For instance, in Florida, 50% of candidates fail to make the cut the first time around.
Activate Your Real Estate Agent License
To start engaging with real estate clients, you’ll need to send all the required documents, along with your application and fees, to the state’s licensing or regulatory board. Even if you pass your exams, you must not start work until the real estate commission officially releases your license. If you’re intent on joining a brokerage, you should tell them whether you’ve already received your license or are still waiting for official confirmation.
You’ll also need to sign up for a multiple listings service (MLS) membership. This is extremely important, because that will be your system for listing and disseminating properties among popular websites, such as Realtor.com and Zillow.
Activating your license through your state’s real estate commission carries a fee of somewhere between $200 and $400. They use this money to process your application and make your name searchable on their database so that clients can find you and check your credentials.
Become a Realtor
Real estate agents and realtors are not the same. A real estate agent is a professional with a license allowing them to facilitate the purchase and sale of properties in their area under the guidance of a broker. A realtor has the same qualifications, but they are also a member of the National Association of Realtors (NAR) and follow its code of ethics.
Joining the NAR provides real estate agents with a host of benefits. It increases your credibility, so you’re much more likely to get lucrative clients. Plus, you get access to vast real estate market statistics, a knowledge base, and host of business tools. For instance, members get access to Realtors Property Resource (RPR), a database with practically all the information you could ever want about permits, zoning, mortgage and lien data, foreclosures, and local schooling options.
The NAR is highly popular among real estate agents. The organization currently has more than 1.3 million members, and is growing all the time. Members operate in multiple roles: Appraisers, counselors, property managers, and salespeople. There are also ample educational opportunities and, occasionally, discount programs designed to help you further your career.
Join A Brokerage
The last step is to join a brokerage. There, you’ll work under the direction of a broker – a licensed professional with the legal authority to oversee real estate transactions.
Working for a brokerage typically costs you a monthly fee – anywhere from $25 to $500. However, in return, you will get legal protection, a monthly paycheck, and commission. In most cases, you won’t earn an hourly wage.
Arrangements between real estate agents and brokers differ considerably by brokerage. You may have to pay for:
Real estate CRM subscriptions
Use of lockboxes for keys
Other costs of doing business
While the costs might seem high, the benefits are generally worth it. By being part of a brokerage, you can start earning a significant income from the get-go, instead of having to do further training and building up a client base. What’s more, you’ll receive a healthy commission for each sale you make - it’s not uncommon for agents to make thousands of dollars in a single transaction.
Real Estate Agent vs. Broker
Real estate agents and brokers are different. While both perform the same task types, a broker is a real estate agent who continues training and eventually obtains a state real estate broker license. Unlike regular agents, brokers can start their own brokerages, work independently, and hire other agents to work alongside them. However, both types of professionals spend most of their time matching buyers with sellers and ensuring everything goes through before the closing date. For instance, they can:
Help buyers find properties matching their criteria
Assist buyers with legal issues before the closing date
Help both buyers and sellers in their negotiations
Determine the value of client properties
List properties online, including luxury properties, if they are a luxury real estate agent
Help buyers make and communicate offers
Brokers can also take on different levels of responsibility. For instance, associate brokers typically work under the direction of another broker, while managing brokers oversee the entire transaction process, work for themselves, and ensure that agents perform well. A principal broker is a professional who ensures a brokerage complies with state and federal laws.
Becoming a broker can take a while. Most aspiring real estate professionals work in a brokerage for several years to fully understand the industry before taking the plunge and branching out by themselves.
Once you become a broker, you may be able to double or triple your pay. You’ll also have an opportunity to scale your business and begin earning incomes significantly above conventional pay brackets.
Becoming a real estate agent is a lucrative option for many people because it doesn’t require going through years of college and racking up large debts. Most people can learn how to be a real estate agent in a matter of months and spend less than $1,500 on training, examination, and licensing.
What’s more, even entry-level agents can earn a respectable salary. The average salary is over $89,000 a year, with top earners making hundreds of thousands of dollars annually.
Of course, there are downsides. For one, you won’t get paid an hourly or daily rate. Virtually all of your pay will come from the commission you would earn from each transaction. If you don’t make sales, you won’t earn any money. Second, you’ll need to pay a fee to work in a brokerage. The money goes to cover the expenses both you and your employer incur during your work.
If you’re not happy with the level of flexibility working under a conventional real estate broker offers, you can apply for a broker license. With these, you can set up your own brokerage, work for yourself, oversee the entire property transaction process independently, and hire agents to work for you. Becoming a broker in a specific field can also make you more desirable in certain sectors, such as commercial property, or property management.
In summary, learning how to be a real estate agent is relatively straightforward and an excellent option for anyone who doesn’t want to go through college, but needs to start earning as soon as possible.
By Goran Dautovic ·
Business landscapes have changed dramatically since the turn of the century, and the generational shift in mindsets is very hard to ignore. People now appreciate that there are many opportunities outside of the traditional nine-to-five. About two-thirds of teenagers now state that they have intentions to start a company in later life. There’s also an increasing number of budding teen entrepreneurs.
It’s the oldest cliche in the book, but if you’re good enough at something, you’re old enough. So, if you’re looking for teen business ideas, read on, as this guide will discuss the most inventive concepts along with the process of launching your venture.
Why Starting as a Young Entrepreneur Makes Sense
Finding ways to earn money as a teen isn’t anything new, and there are plenty of options ranging from delivering papers to flipping burgers. While they remain great options for many teenagers across the nation, there’s nothing wrong with wanting more.
Building your own company will require a lot of work. Nevertheless, there are many reasons to consider starting a teenage business:
Break free from the financial restrictions of working for minimum wage, which is set by the Fair Labor Standards Act to be as low as $4.25 per hour. Many teen entrepreneurs earn more than their friends in traditional employment, while a small percentage can become millionaires before they’ve even graduated high school.
Owning a business offers young entrepreneurs a chance to take control of their life. This means working on something they’re passionate about while also setting a work schedule around schoolwork and other commitments. Better still, there is no threat of being treated poorly by an employer.
It’s a chance to develop key business skills and gain experience. Even if the venture only lasts for a few years, the lessons learned are the perfect preparation for university, business school, or starting a business in later life.
Starting a business teaches you to be resilient and look for logical solutions to an array of challenges. This can give you a head start at a time when many members of the younger generation lack face-to-face communication skills.
As a teen, you have fewer financial commitments than adult entrepreneurs, which means you have time to help your business grow organically. This will instantly give any strong business concept a better chance of success because it’s a far less stressful environment to enter. You’ll also be able to invest your profits back into the firm.
The thought of running a business and learning how to monetize a hobby carries a lot of appeal for the immediate future while it could be a chance to build a lifelong career in the process.
What Makes a Good Business To Start for Teens?
If you’ve weighed up the pros and cons of starting a business if you’re a teen and decided it’s the way to go, your next step would be to determine what you want from a venture. A quick look at some of the best teen entrepreneurs highlights the fact that success can take many forms.
Ultimately, all business owners must find their own pathway. Still, some elements are common to top business ideas for kids and teenagers:
Small initial investment: Low-cost financial investment opportunities are essential because most teens have very limited capital and would struggle to seek loans outside of mom and dad. Finding a venture with zero or minimal outlay helps combat this problem.
Work from home: At-home business ideas for teens are highly popular because working from home takes the financial costs and logistical issues of finding commercial spaces out of the equation. It also buys you more time as there will be no pressure to start turning a profit right away. The fact you won’t need to commute is a plus, too.
A project you’re passionate about: A fun and engaging business idea that allows you to work on something you love. Aside from making it more enjoyable, your passion will shine through to impress future clients and customers.
A business idea that can make a difference: In general, younger generations care about sustainability and social responsibility. If these things matter to you, too, don’t be afraid to make them the core values of your business. If you care, audiences will too.
Flexibility: The venture will likely start as a side hustle that fits around your other commitments. There are times when you may need to focus on school and can only dedicate a small portion of time to the business. At other times, you may have greater availability. A venture that supports this is vital.
Ultimately, a good business venture for teenagers is one that’s enjoyable, versatile, and offers a fair shot at success.
The Top 13 Small Business Ideas for Teens
Now that you know what to look for in small business ideas for teens, the big challenge is to find one that suits your personality, availability, and circumstances. Whether you’re 13 or 19, you’ll find the perfect business to start as a teenager by checking out the best options below.
1. Selling Art
If you like drawing and have been searching for answers on how to monetize your hobby, selling artwork is one of the best online business ideas for teens you should consider.
People buy artwork for gifts, home decor, and a range of other purposes. Over 2.5 million sellers use Etsy to earn money, and more than 60% of them are US-based. If they can do it, then so can you, especially if you have an eye for detail and the ability to create great products. Some of the most popular products are:
Stickers, notebooks, and stationery
Graphic designs, including personalized art
Paintings and prints for home decor
Everybody has a talent. If yours is something other people aspire to possess, there’s a good chance you could start a side business as a tutor. Tutoring for teens can mean anything from helping other students with their math homework to teaching people how to play an instrument.
Speaking of musical instruments, did you know that guitar tutors can charge up to $60 per hour? Even if you command half of that fee, you’ll only need a small number of clients to earn more money than you’d ever hope to earn from working in the local 7-11. You could also look to utilize your skill through the following ideas:
Making use of your second language by teaching others online or offline
Helping older citizens learn how to use modern tech like Facetime
Teaching gamers how to master a particular title
The options are virtually endless, meaning you can choose a small side hustle or look for something that could become a legitimate long-term business model.
3. Photography Services
Many business ideas for teens encourage you to showcase your creativity, many of which can focus on selling a service rather than a product. Photography is a fantastic solution, although you’ll need to invest in a DSLR camera and accessories.
Still, each job is a chance to perfect your craft, refine your style, and determine which part of photography you’d like to enter long-term. It’ll also look great on college applications for either business school or photography school. Some of the most popular events that you may be able to cover are:
Sporting events - especially at college, amateur, or semi-pro levels
Family celebrations - graduations, communions, and birthday parties
Business photography - staff profile shots and photos for company sites
As you grow your portfolio, you may also gain the opportunity to work on-spec for local news or media outlets.
4. Blogger, Vlogger, or Podcaster Services
When thinking about the most successful teen entrepreneurs, especially well-known ones, the first thing that comes to mind is the world of digital media. For over a decade now, platforms like YouTube have provided content creators an outlet to make money through ads.
Teen blogging, vlogging, and podcasting can deliver huge returns. Anybody can upload to YouTube, Spotify, or their own websites. It’s the perfect way to make your voice heard and discuss the issues that matter most to you. Monetizing your hobby is possible via:
Offering paid content to your most loyal fans
The internet has changed how we consume media, and authenticity is now king. If you can provide it, content creation is a low-cost and low-risk venture.
5. Utilizing Social Media
If you’re anything like an average teenager, you’re already putting plenty of content online without realizing it. Likewise, you’re interacting with friends and online acquaintances through social media. If you’ve built a fan base, it could be your ticket to good earning potential.
According to some estimations, 270 million TikTok views per year could earn you $100,000. Influencers can also make money through Instagram and other social media channels. Moreover, you don’t have to grow an audience of millions. If your fanbase is from a distinct niche and shows good engagement levels, you can make money through:
Getting paid to collaborate with brands
Affiliate marketing where you promote products your audience will love
Donations and gifts
Older generations may find it hard to believe that you can make money online simply by building an audience, but you can. Don’t be afraid to try.
6. Playing Music
Pop music has produced teen superstars for generations. Meanwhile, digital channels helped Justin Bieber get signed back in the day while the likes of Britney Spears, Iggy Azalea, and Billie Eilish all hit the big time as teens.
It’s not only pop music where teens and young adults can achieve success. And you don’t have to hit the mainstream for playing music to become your perfect teen job. Even as a newbie, a talented wedding singer can get paid a good fee. You can also earn money as a musician by:
Playing the local gig scene or getting festival slots
Selling your music on CDs
Playing at school graduations and other events
It’s a great way to turn a hobby into a money-making endeavor while starting a band is the perfect outlet to hang out with your pals - besides, who knows where the journey will end.
7. Car Washing
It’s likely that you’ve washed your mom or dad’s car for some extra money at least once in your childhood. As far as small, local business ideas for teens are concerned, it’s one of the easiest to get started.
There are over 287 million vehicles in America, and thousands of them are within a three-mile radius of your home. The majority of drivers want to keep their car sparkling but don’t have the time. You can be the person to take care of this for them. Some of the benefits include:
The costs are minimal (sponge, water, shammy, car cleaning materials), while you can even find free marketing through social media and word of mouth.
You can arrange to visit a client at a time that suits you or even look for business in the local area when you have a few hours to kill.
There is no need for a commercial setting, employees (although you could team up with a friend), or major business planning.
It may subsequently open the door to starting a valet service or opening an office-cleaning business. Cleaning services will always be needed, making it a very stable business option.
8. Pet Care
Approximately 68% of households in the US have at least one pet. So, if you start the business correctly, you won’t be short of customers.
The pet care business could mean grooming dogs and cutting their nails. Or it could mean pet-sitting for cats when a family is away on vacation. Dog walking is another popular option because you get to spend time with furry friends and stay active. Pet care businesses are a good choice because:
There is minimal outlay. In fact, it’s often completely free to get started.
Once you have your client base, it’s regular work that you can fit into your schedule.
If you don’t have a pet, this is the perfect backup.
You can start this business by working for family friends before moving up to local customers when you are confident.
9. Open a Franchise
Franchising may not seem like an accomplishable dream for a teen business. However, there are affordable franchises for under $10k. You may need to rely on your parents to help fund this option, but if you can commit yourself to the work, it can be profitable.
Opening a franchise can introduce you to running a business without the need to build a brand and help you gain experience managing a small team. You can set opening times to suit your needs, even if it’s only during the summer vacation, and if things go well, it may be possible to open a second franchise or get a friend involved.
10. Handyperson Servicing
OK, so you don’t have a plumbing license or the qualifications to work as an electrician. Still, there are plenty of jobs around the home that people need help with or don’t have time for. They can be some of the best teen business ideas of all.
Jobs for 15-year-olds can include fixing flat-pack furniture, handling basic landscaping duties, and cleaning a person’s property. You can even extend the work to completing daily errands for people with reduced mobility or a lack of time. There are many advantages of this type of work, such as:
Each job can be different - one day, you’re mowing a lawn, the next, you’re making a cupboard
There are early growth opportunities: For example, you can hire a friend to take on the jobs you can’t complete for a small cut
The earning potential is a lot higher than the traditional jobs teenagers take on, like store assistants.
If you feel that becoming a tradesperson is your future, this will be the perfect start before moving on to professional training in your desired field.
11. Online Retail
Starting an online store is one of the best online business ideas for teens because the potential exposure is relatively low. Thanks to the growth of the global dropshipping sector, you no longer have to possess stock. Instead, you can promote and sell products on your web store before the order fulfillment company delivers them. Alternatively, you could look at print-on-demand services to sell a host of products like:
Fashion (especially t-shirts) and accessories
Phone cases, mugs, and small household items
Greetings cards, photo books, and personal goods
Dipping your toes into the retail sector in this manner requires minimal spending, and it could unlock a lifetime of success in business.
12. Creating Products
When looking for cute business ideas, crafts for teens are an ideal outlet. Creating and selling products is an opportunity to learn how to run a business in a fun and engaging way. This type of venture will also make you learn about invoices and other business tools and documents.
Take advantage of the fact that people want various beauty products or fashion items to revamp their personal appearance. Aside from outlets like Etsy, your products could be sold locally at:
A pop-up store that you run for a day or two
Market stalls, trade show events, and other outlets
By attending schools, businesses, or other relevant venues
There are many examples of young adults who created products from their homes to become major brands. You could be the next GymShark in your chosen niche.
13. Web Designing
Small business ideas for teenagers don’t have to be that different from what adults provide. If you can design a great product or service, there will be opportunities to turn your talent into cash, regardless of your age. Web design services certainly fall into this category.
According to the latest small business statistics, there are more than 32.5 million businesses in the US alone, and virtually all of them need a website. Whether it’s starting a website from scratch or revamping an outdated one, you can help. Major marketing firms charge thousands, so this is an opportunity for you to win clients by charging less. Your services may include:
Designing responsive websites for WordPress and other popular CRMs
Creating websites from scratch using Dreamweaver or other software tools
Designing social media page layouts and integrations
It’s one of the best business ideas for students, especially those studying web design or marketing. Once you have your qualifications and portfolio, your earning potential will soar.
Teen Business Tips To Help You Get Started
Whichever business model you think might be best for you, it’s vital that you think it through and launch it correctly. Many of the digital-based options can start out as hobbies and won’t need business plans or registrations until you start earning a reasonable amount of money. However, you should still record all transactions.
Some of the best business ideas for teens do require you to register the business. You’ll probably launch a sole proprietorship, although you could need an LLC for ideas like a franchise. Other issues to consider are:
Whether you need an employer identification number to pay employees
Whether you need a small checking account to facilitate business transactions
Any insurance coverages you may require, especially public liability
If you’re unsure about how to start the company, speak to an advisor. They’ll point you in the right direction.
By now, you should be equipped with a range of businesses to start as a teenager and will have thought about the right solution for you as well as how to launch it. There will still be a lot of work ahead, from defining your target audience to finding the right bank for your business. Still, if you enter the process with a winning mindset, you’ll enjoy the ride and learn a lot.
Besides, it has to be more fun than working a job you hate for $4.25.
By Julija A. ·
S-corp and C-corp are used to describe different business structures and refer to the tax status of a company. Also known as S-corporations and C-corporations, these structures also determine liability protections for the owners of each organization. The following guide defines both C-corp and S-corp and compares the two tax designations.
What Is a Corporation?
Both C-corps and S-corps are legal business entities where the shareholders aren’t personally liable for the debts of the company. These corporations are set up by filing Articles of Incorporation in accordance with local laws. The owners are defined as shareholders. A shareholder’s responsibility is limited to their investment in the business. A company registered as a corporation will also usually have directors and officers who run the business.
When it comes to tax categories, C-corp is a default tax classification for corporations. However, companies that meet certain eligibility requirements can also choose S-corp taxation as an alternative.
Before we discuss the differences between S-corp and C-corp and analyze the pros and cons, it’s important to understand the broader definitions of these two structures. C-corp is the standard tax category for corporations. This is the most common corporate tax status and meets specific Internal Revenue Code requirements.
Within this structure, owners or shareholders are taxed separately from the corporation. The shareholders pay a personal income tax, and the corporation is taxed independently. But this also means that the owners are effectively paying a double tax because the government taxes the company’s earnings and the owners’ personal income.
S-corp refers to a corporate tax structure that offers an alternative to C-corp taxation. Rather than paying taxes on personal income along with a federal corporate income tax, the S-corp classification means that the corporation can pass income, losses, and deductions to shareholders to file on their personal tax return. S-corp is classified as Subchapter S of the IRS tax code. Businesses must meet certain criteria to become an S-corporation.
How Do C-Corporations Work?
The C-corp tax class is the most common type of tax status. In other words, most corporations are C-corporations. Once you have an Employer Identification Number or EIN, the IRS taxes both individual and corporate dividends. That’s why C-corp taxes are commonly referred to as a form of double taxation, as owners aren’t permitted to write off corporate losses to offset earnings when filing personal income statements.
How Do S-Corporations Work?
S-corp taxes don’t include a federal corporate income tax. If a corporation is registered as an S-corp, the company passes its income, credits, deductions, and losses to shareholders. The shareholders include income and losses on their personal tax returns and pay an income tax. With this system, shareholders are only taxed once.
S-Corp vs. C-Corp: What’s the Difference?
We’ve already touched on the key difference between a C-corp and S-corp business structure. But it’s beneficial to delve deeper into how these tax structures impact different companies.
For starters, there are several important differences during the business formation process.
How to become a C-corporation: After choosing an unregistered business name, you can set up a new entity by filing the Articles of Incorporation with the relevant Secretary of State. The business must appoint a board of directors, while those who purchase shares become owners/shareholders and pay personal income and corporate taxes.
How to become an S-corporation: Launching an S-corp also requires the business to have a legal name. Owners have to submit the Articles of Incorporation, obtain an EIN by filing IRS Form SS-4, and apply for all relevant permits. Additionally, any business that chooses to become an S-corporation or wants to switch from the default C-corp designation is required to file Form 2553 with the IRS. This form has to have all the details about the fiscal tax year and the signatures of all the shareholders.
There are certain criteria companies have to meet to become S-corporations, including:
Have between one and 100 shareholders
The shareholders cannot be nonresidents, partnerships, or other corporations.
Have only one class of stock
Filing Tax Returns
C-corporations file quarterly returns, while S-corporations file annual returns.
It is also beneficial to note the differences in shareholder requirements between C-corps and S-corps. The number of shareholders is unlimited if your corporation is a C-corp. Meanwhile, the maximum number of shareholders at an S-corp is 100. It’s also important to be mindful of the IRS eligibility requirements for shareholders, one of which doesn’t permit nonresidents.
The table below offers a more comprehensive look at the differences between S-corporations and C-corporations:
Default tax structure: formed through Articles of Incorporation
Articles of Incorporation + IRS Form 2553
Double taxation: personal income tax + corporate tax
Single taxation: personal income tax
When are taxes filed?
Number of shareholders
Limited to 100
Types of shareholders
Anyone who is eligible
Individuals + eligible estates, trusts, and organizations that are tax-exempt
Domestic and international
IRS scrutiny level
S-Corp Pros and Cons
Before deciding which business structure is most suitable for your company, it’s important to weigh the pros and cons. Below are the main advantages and disadvantages of an S-corp tax status.
The main advantage of S-corps is their adherence to the pass-through taxation system that allows shareholders to avoid double taxation and only pay a personal income tax.
In some cases, the company’s losses can be passed on to owners.
S-corporations only file tax returns once a year.
Reduced taxable gains
Limited liability for owners and employees
S-corp shareholder limit of 100
There are stringent requirements for shareholders, who must be US residents and cannot be partnerships.
Only one class of stock allowed
It’s more difficult to raise equity because S-corps tend to be less appealing to investors, such as venture capitalists.
More intense scrutiny from the IRS
C-Corp Pros and Cons
Limited liability for shareholders, employees, officers and directors
No limit on number of shareholders
Shareholders can be either domestic or international.
Easier to raise equity than with S-corporations
More than one class of stock allowed
Lower tax rate
Double taxation system which includes a corporate income tax and a personal income tax for shareholders.
Gains and losses cannot be passed to shareholders, which means that they cannot write off losses on their personal tax returns.
May be more time-consuming to manage due to the rigid structure of the corporation.
What Business Would Benefit From Being An S-Corporation?
The outcome of the showdown between S-corp vs. C-corp ultimately comes down to your individual needs. Some corporations are better suited for the former. Here are some scenarios when the advantages of the S-corporation status may outweigh the disadvantages:
You do not plan to have more than 100 shareholders or any investors that don’t meet the eligibility criteria.
You don’t plan to issue preferred stock to shareholders.
All your shareholders are based in the US.
You plan to distribute income to shareholders.
C-Corp vs. S-Corp Tax Advantages: When Is C-Corp the Best Option?
You may wish to consider sticking with the default C-corp tax structure if the following circumstances apply to your business:
C-corp taxes would be lower for your business than S-corp taxes.
You plan to launch an IPO.
You are looking for investors who may not be eligible for S-corporation investments.
You have more than 100 shareholders, or some of your shareholders are from overseas.
You want to make shares freely transferable.
You plan to offer shareholders access to preferred stock.
Exploring Other Options
C-corps and S-corps offer a range of benefits for businesses, but they are not the only options for companies. There are other types of corporations and additional structures to consider.
Other types of corporations include:
Benefit corporations: These are also known as B-Corps and public benefit corporations or PBCs. The designation is held by for-profit companies that balance their responsibilities to shareholders with social and environmental performance. This is a state and not a federal designation, and it’s available in most states. Most B-corps are also C-corps, but they can apply to become S-corps.
Nonprofits: These entities become corporations for reasons that are not linked to generating profits. Nonprofit corporations are eligible for federal and state tax benefits.
Alternative business structures to explore:
Limited liability company or LLC: LLCs are often considered the middle ground between corporations and partnerships. LLCs can be taxed in the same way as C-corps or S-corps but are not governed by the same rules and regulations. LLCs are often easier to run for small business owners.
Sole proprietorships: Sometimes known as sole traders, sole proprietorships are regarded as the simplest and most flexible option for small business owners. With a sole proprietorship, the owner is only taxed at a personal level. This structure does not have shareholders and doesn’t allow stocks to be sold.
Partnerships: This structure involves an agreement between two or more people who are also taxed on a personal level. Business owners may also want to consider limited liability partnerships or limited partnerships.
LLC vs. C-corp vs. S-corp
When setting up a new business or exploring options for an existing one, it’s helpful to look at the different structures and how they impact companies. Here are some key takeaways from the S-corp vs. C-corp vs. LLC comparison:
Forming an LLC involves choosing a business name, assigning a registered agent, filing Articles of Organization, drawing up an operating agreement, and applying for an EIN, also known as a federal ID number. Once you’ve completed these processes, you’ll need to submit business licenses and permits and open a bank account. To form a C-corp, you’ll need to file the Articles of Incorporation. To become an S-corp, there is an additional IRS form to complete.
LLCs can opt for S-corp taxation, in which case the businesses avoid double taxation. C-corporation status is effectively a double tax, which combines a corporate and personal income tax.
Setting up and running an LLC is often simpler than managing C-corps and S-corps. This is why small business owners are often advised to consider an LLC or a sole proprietorship.
C-corporations can have unlimited shareholders both in the US and overseas. S-corporations are limited to 100 shareholders. Shareholders must be US citizens and must also satisfy strict eligibility criteria. LLCs have members rather than shareholders.
One major difference between an LLC and a corporation is that the former can be a pass-through business, while S-corporations are not. That means that all profits and losses are passed through to individual LLC owners, whereas S-corp profits are held by the corporation.
LLC vs. Sole Proprietorship
A sole proprietorship is a business with a single owner who takes sole responsibility for the running of the company. There are no shareholders, and there is no legal separation between the proprietor and the business.
Meanwhile, an LLC is a legal business entity that can be created by a single person or a group of people. The LLC structure combines elements of corporations and partnerships, and it provides a lot of flexibility for business owners.
Here are some of the key differences between a sole proprietorship and an LLC:
Formation: To form an LLC, you must file Articles of Organization, obtain the relevant licenses, and register your business name. To form a sole proprietorship, you simply need to obtain the relevant permits and register your name.
Management: Multiple people can make decisions within an LLC. On the other hand, a single owner is responsible for making decisions with a sole proprietorship.
Taxes: Both entities have a pass-through tax structure. However, an LLC can opt for corporate tax status.
Liabilities: A sole proprietor is liable for business debts, while those who own an LLC are not.
The Best Option
There is no one-size-fits-all when it comes to selecting the appropriate business structure. That’s why it’s critical to take the time to research different options and compare the pros and cons of S-corps and C-corps.
Whether you are new to the corporate world or your objectives have changed, identifying the right avenue when registering your business will help you save money on taxes and provide you with the necessary liability protection.
By Vladana Donevski ·