S Corporation

The advantages:

• One advantage of forming an S corporation is that when the corporation has losses, the shareholders can use these losses to offset other income, so their taxes will be lower.
• Secondly, under the S Corporation tax election the business is only taxed once. This is an important benefit if the corporation wants to retain a greater portion of its income for future growth.

The disadvantages:

• The disadvantages of an S corporation are that there are specific requirements that need to be met in order to qualify as an S corporation. It must be a domestic corporation, and there is a cap as to how many shareholders the corporation may have.
• Foreign investors are not able to become shareholders in the S corporations. This is disadvantageous since globalization has become an important trend in the world of business.