Top three reasons: Tax. Tax. Tax. Which is why they were created to begin with back in the day (1958), to encourage small business creation in the U.S. An S Corporation has a “single layer” of tax, i.e., unlike C Corporations (which is what all corporations formed in the United States are unless they make the election to be taxed as an S Corporation) which have a corporate-level tax, and then a second tax at the shareholder [LINK TO What are stockholders and shareholders] level when dividends are paid, S Corporations are taxed only at the shareholder level (though there is a state tax in California). Also, an S Corporation structure allows you to divide outflow to its shareholders (owners) between salary (taxed at higher earned income rates) and distribution (taxed at preferred non-earned income rates). There are limitations: The number of shareholders is limited, an S Corporation may have only a single class of stock , and the rules limit who or what may own shares in an S Corporation.