Is there a difference in liability protection between an S-Corp and a C-Corp?

Get Legal Help Today

 Secured with SHA-256 Encryption

Is there a difference in liability protection between an S-Corp and a C-Corp?

I have been told that a C-Corp offers better liability protection than an S-Corp. However I am unable to find anything to corroborate this information.

Asked on March 20, 2012 under Business Law, Florida

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

Legally, both the S-Corp and the C-Corp provide the same protection against liability--the only significant difference between them is their tax treatment.

The source of what you heard may be this: there is a rarely used, and even more rarely successful, doctrine called "piercing the corporate veil." It allows creditors, including judgment creditors, to hold the shareholders of a corporation liable if it can be shown the corporation was essentially a pretext, used only to try and defraud creditors, vendors, customers, clients, etc. If the owners' personal finances and the corporate finances were so co-mingled that the corporation did not in fact have an independent existence, that is when the corporate veil might be pierced. While the same legal standard applies in this regard to both S- and C-corps, as a practical matter, the owner of an S-corp., due to the different tax treatment (and the psychology that evokes), is much more likely to wrongfully use corporate funds or accounts as his/her own; therefore, as a practical matter, it is somewhat more likely that the corporate veil of an S-corp would be pierced than that of a C-corp.


IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

Get Legal Help Today

Find the right lawyer for your legal issue.

 Secured with SHA-256 Encryption