The S Corporation is more attractive to small business owners than the corporation is. The S Corporation has some appealing tax benefits and still provides business owners with the liability protection of a corporation. With an S Corporation, income and losses are passed to shareholders and included on their individual tax returns. As a result, there is just one level of federal tax to pay.

S Corporations can have up to 75 shareholders, which makes it possible to have more investors and thus attract more capital. S Corporations are subject to the same requirements as corporations, which means higher legal and tax service costs. They also must file articles of incorporation, hold directors and shareholders meetings keep corporate minutes and allow shareholders to vote on major corporate decisions. An S Corporation can only issue common stock, which can hamper its access to raise capital.