An S corporation is a standard corporation that has elected a special tax status with the Internal Revenue Service (IRS). The formation requirements for an S corporation are the same as those for C corporation wherein formation documents must be filed with the state and the appropriate state filing fees paid.

The S corporation's special tax status eliminates the possibility of the double-taxation that can occur with the C corporation. With S corporations, a corporate income tax return is filed, but no tax is paid at the corporate level. Instead, the profits of the corporation are "passed-through" to the shareholders and are reported on their individual tax returns. Tax is then only paid at the individual level.

As with C corporations, the shareholders of an S corporation are not typically held personally responsible for the debts and liabilities of the business.

Some common advantages of an S corporation include:

S corporations avoid the possibility of double-taxation on the corporation's profits.

Shareholders are typically not personally responsible for the debts and liabilities of the corporation.

Most other advantages of the C corporation also apply to the S corporation.

Some disadvantages of an S corporation include:

The IRS imposes restrictions on who can be a shareholder of an S corporation: shareholders must number fewer than 100; must be individuals, estates, or certain qualified trusts; and cannot be non-resident aliens.

S corporations can have only one class of stock (disregarding voting rights).

All shareholders of the corporation must consent in writing to the S corporation election.

Corporations are more expensive to form than sole proprietorships and partnerships, and face ongoing filing requirements and state fees.

Corporations face ongoing corporate formalities, such as holding and properly documenting annual meetings of directors and shareholders.