An S corporation is a special type of corporation that allows the owners of the company to pass the company's income and losses directly to their personal income tax return. Documents must be filed with the state and the IRS in order to create an S corporation. A sole proprietorship is a business that has a single person in charge of every aspect of the company; a sole proprietorship does not have to file paperwork to begin their existence.
Liability
Owners, directors, officers and employees have limited liability protection from an S corporation's business obligations, liabilities and debts. This protects the personal assets of an S corporation's owners and employees from being seized if the company is unable to meet its existing obligations. The owner of a sole proprietorship has unlimited liability for business debts and liabilities that may arise. Business creditors of a sole proprietorship may go after the business owner's home, car and other personal assets if the company's assets are not enough to cover the debt.
Stock
S corporations have the ability to issue stock as a means of raising money, while a sole proprietorship cannot issue stock. In fact, the minute a sole proprietorship sells a portion of the company, it will no longer be treated as a sole proprietorship. Selling shares of an S corporation allows the company to meet its existing obligations or expand the business.
Ownership
A sole proprietorship can only have one individual as the company's owner. An S corporation may have as many as 100 owners. Shareholders of an S corporation may consist of estates and trusts, which is not allowable for a sole proprietorship. Owners of an S corporation must be citizens or resident aliens of the United States.
Organization
A sole proprietorship can have any type of management structure that the business owner chooses. S corporations are required to have a specific organizational structure that consists of shareholders, directors and officers. Furthermore, S corporations are required by law to hold at least one meeting per year, whereas a sole proprietorship does not have to hold company meetings at all.
Life
An S corporation can exist forever. S corporations do not come to an end if a shareholder decides to sell their ownership interest in the business. An S corporation continues to operate regardless of who the shareholders are. A sole proprietorship ends when the owner of the business dies. A business owner's retirement is another reason a sole proprietorship may come to an end. Retirement and death of an owner do not cause an S corporation to dissolve.
