A Subchapter S Corporation is a corporation that has elected a special tax status with the IRS. The main advantage associated with the “S” Corporation is that the income passes through to the shareholders, thus avoiding the double taxation of a “C” Corporation. Subchapter S corporations are most appropriate for small business owners and entrepreneurs who want to be taxed as if they were sole proprietors or partners – again, this is a pass through tax structure, meaning you file profits and losses on your personal tax returns.
Unlike an LLC, which can have an unlimited number of members, a subchapter S Corporation is restricted to no more than 75 shareholders. Also, an S corporation requires formalities, annual meetings of shareholders and directors are required each year and meeting minutes are required to be kept with the corporation’s records. Furthermore, an S Corporation is perpetual in existence, while LLCs are limited to the lifespan of the members. Finally, with an S corporation, ownership can be transferred through stock, while in an LLC, ownership is fixed.