Final answer:
The major distinction between corporations and S corporations lies in the method of taxation of profits: corporations experience double taxation, while S corporations have pass-through taxation.
Step-by-step explanation:
One of the big differences between corporations and S corporations is how profits are: a) Taxed at the corporate level b) Distributed to shareholders c) Used for expansion d) Reinvested in the company. Corporations typically endure what is known as 'double taxation,' where the business's profits are taxed, and subsequently, the dividends paid to shareholders face personal income tax. In contrast, S corporations benefit from 'pass-through taxation' where profits are taxed only at the shareholder level, thereby avoiding the corporation itself from being taxed on its profits.
A corporation is an entity that allows its owners, the shareholders, to enjoy limited liability for the company's debts while sharing in its profits. While they can be public or private, with the ability to raise funds by selling stock or issuing bonds, the taxation method that applies to them is a critical aspect of their structure. In contrast, an S corporation, while similar in terms of limited liability and the ability to share in profits, is structured in such a way that it allows profits (and some losses) to be passed directly to shareholders, thereby bypassing the corporate income tax level.