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Corporation
In a corporation, the liability of the owners is limited to the amount they pay for their shares of stock. A corporation is a legal entity, and its continuity is unaffected by death or the transfer of shares of stock by any or all owners.

There is a certain type of corporation, known as an "S corporation," in which profits are passed through to the individual stockholders, much the same way as in a partnership. To be treated as an S corporation, all shareholders must elect S-Corporation status.  There is also a taxation arrangement known as a Qualified Subsidiary Sub-Chapter S (QSSS).

Information concerning New Jersey tax treatment of income from S corporations received by individuals is available in GIT-9S, Income from S Corporations.

One arrangement may be more advantageous for you than the other, so please discuss them with your financial advisor.

 
C Corporation
A C corporation is not actually a business structure, but the "tax status" of the company. All corporations are C corporations unless they opt to take advantage of a provision in both federal and state tax laws to become S corporations.

Taxes on profits of a C corporation are paid both by the corporation itself and by the shareholders when the profits are received as dividends. However, shareholders cannot deduct any losses posted by the C corporation.
S Corporation
The state’s Division of Taxation currently administers more than 35 taxes and fees as well as the state’s Unclaimed Property Program of which one or more may have an affect on your decision. REG-3  [pdf 25 k]

A corporation may elect to be a New Jersey S corporation only if it meets all of the following conditions:
  • The corporation is registered as a New Jersey corporation or as a foreign corporation authorized to do business in New Jersey by the Division of Revenue's Business Services Bureau; and
  • The corporation is or will be an S corporation pursuant to Section 1361 of the Federal Internal Revenue Code; and
  • Every shareholder of the corporation consents to the election and the jurisdictional requirements as detailed in Part II of the New Jersey S Corporation Election Form CBT-2553 [pdf 371k]; and
  • The corporation consents to the election and the assumption of any tax liabilities of any non-consenting shareholders who were not initial shareholders as indicated in Part III of Form CBT-2553 [pdf 371k].
  • Corporations that have not made the election or have not been approved as New Jersey S corporations must continue to file the New Jersey Corporation Business Tax Return, Form CBT-100.
  • Approved New Jersey S corporations must file the S Corporation Business Tax Return, Form CBT-100S.
For more information on S corporations, refer to NJ Division of Taxation publication:

S GIT-9S, Income from S Corporations [pdf 418k]
S-Corp Questions and Answers [pdf 130k]
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