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As a certain type of small business corporation, an S corp offers many advantages in the form of tax benefits, liability protection, increased prestige, and generous retirement contribution limits. The main disadvantages are a fairly involved setup process and requirements that must be carefully followed.

LLCs and S corps have much in common: Limited liability protection. The owners of LLCs and S corporations are not personally responsible for business debts and liabilities. Instead, the LLC or the S corp, as the owner of the business, is responsible for its debts and liabilities.

The basis limitation is a limitation on the amount of losses and deductions that a partner of a partnership or a shareholder of an S-Corporation can deduct. The basis limits are the first of three limitations that are applied to Schedule K-1 losses and deductions.

An S corporation can have only one class of stock, although it can have both voting and non-voting shares. Therefore, there can't be different classes of investors who are entitled to different dividends or distribution rights. Also, there cannot be more than 100 shareholders.

LLCs are required by law to have operating agreements. However, other entities, such as S-corporations, sole proprietorships, and partnerships, can also benefit from having operating agreements.

S Corporation Requirements Shareholders or members of S corps must be individuals, estates, or certain types of trusts; S corp shareholders cannot be partnerships, other corporations, or non-U.S. residents. S corps may only have one class of stock. An S corp may have no more than 100 shareholders (or members if an LLC)

Once a valid S corporation election is terminated or revoked, the corporation or any successor corporation is generally prohibited from making a new election for five years. The five-year period begins with the tax year after the first tax year for which a termination or revocation is effective (IRC § 1362(g)).

New York S Corp: Startup Cost and Fees Starting any business, including an S corporation, comes with certain startup costs. The total fee for filing a Certificate of Incorporation to create a corporation in New York is $195.

Choose a business name for your S corp. File articles of incorporation. Issue stock for your S corp. Elect a board of directors and appoint officers. Meet other S corp eligibility requirements. Obtain an employer identification number. Elect S corp status. Apply for state and local S corp business licenses.