An S Corporation is a corporate entity with distinctive tax advantages, unlike a traditional C Corporation or LLC.
Similar to the C Corporation and LLC, an S Corporation shields its owners, officers and directors from personal liability. In the event of a lawsuit regarding the company's actions, the owners cannot be directly sued, nor can their personal assets be subject to collection action unless fraud was committed or a personal guarantee for credit was provided.
Unlike these two other business entities, S Corporation holders split profits according to their ownership share. They can also report all revenues after expenses as a form of personal income. This arrangement means that business income is only taxed once, unlike C Corporations, where business income and shareholder dividends are both taxed.
The individual owners of an S Corporation may also be subject to a lower tax rate than a C Corporation since taxation percentages are based on their personal income, not overall income for the business. These individuals can also choose to draw a "reasonable" salary, which is subject to FICA taxes but distinct from earnings given as distributions.
That said, not every company is eligible to be registered as an S Corporation, nor would every business want to register as an S Corporation, based on their overall situation.
If you aren't sure if your business should or can file as an S Corporation, give us a call! We are happy to help you determine the best entity type for your business!