This form can be particularly advantageous in the early years of a corporation because the owners can deduct almost all the corporate losses from their personal incomes, which they cannot do in a standard, or C, corporation. They can have this favorable tax situation while simultaneously enjoying the corporation's limited liability status. If the corporation is likely to sustain major losses, and shareholders have other sources of income against which they wish to write off those losses, the S corporation is probably a desirable form for the business. S corporations are set up in the same manner as C corporations. The S corporation is a tax status the corporation elects once it is formed.
Corporations are the most difficult and expensive form of business to set up.
Unlike partnerships or sole proprietorships, the formation of a corporation is regulated by the state. Though not required by the state, it is generally a good idea to draft bylaws that govern internal corporate policies and procedures. If you are issuing shares, you will need to create a shareholders' agreement. In addition, you must hold annual board of directors' and shareholders' meetings and file an annual report with the state. The cost of setting up a corporation depends on the number of shares and the state in which you are setting up the corporation.