What it is:
An S-corporation (S–corp) is a small business corporation for federal tax purposes only.  It is a C–corporation (C-corp) incorporated under a state business corporation statute that takes steps to be treated as a pass through tax entity under the Internal Revenue Service (IRS).  All shareholders must consent. Most states recognize federal S-corp taxation. Contact a local accountant or other tax professional to determine how your state will treat your business income.
An S-corp has a C-corp’s limited liability, management structure, state formality requirements, etc., but instead of the C-corp’s separate entity taxation, the S-corp’s income, losses, deductions, and credits pass through the entity to the shareholders, and are taxed only once at the shareholder level. S-corp shareholders report their income, etc., on their personal tax returns. It is taxed at their personal tax rates.
An S-corp is defined by the IRS. “Small” in the case of an S-corp does not refer to asset size, number of employees, or industry presence. This is not a “small business” as defined by the U.S. Small Business Administration (SBA). The SBA defines small businesses as not dominant in their fields, and limited in number of employees or annual receipts.  This is different. S-corps may have unlimited receipts and assets, unlimited employees, and unlimited field presence. “Small” in the case of an S-corp refers strictly to corporate ownership; shareholder number (100 maximum) and restricted shareholder eligibility (below).
Who can do this:
Only domestic corporations with a maximum of one hundred (100) eligible shareholders may make the S–corp election. Foreign corporations may not become S–corps. Insurance companies and certain financial institutions  may not become S-corps.
All shareholders must be individual U.S. citizens or residents, certain tax-exempt organizations,  certain trusts,  or estates (during their normal estate administration periods).  Family members may be counted as a single shareholder, but each family member must be an eligible shareholder in her or his own right.
Partnerships, corporations, and nonresident alien individuals are not eligible S-corp shareholders.
Transferring S–corp shares to ineligible shareholders will defeat S–corp status. Any certificated shares must conspicuously post share restrictions.
Your state may require that incorporators (those who organize a corporation) meet certain age requirements or other qualifications.
Individuals serve as directors and officers.
There must generally be one or more directors. This may vary by state. Some states may also have director age restrictions or other qualifications.
Every corporation must generally have officers. Your state may require your corporation to have certain officers. Often, one person may hold two or more offices.
Directors generally do not have to be shareholders. (The very idea of the corporation has to do with dividing these roles.) Nonetheless, any one or more individuals may generally form a corporation and serve all necessary corporate positions. For example, a single individual may serve as sole shareholder, director, and often fill one or more offices. However, especially where corporate owners are also directors or officers, it is important that owners respect the corporate form. To maintain limited liability, corporate owners, directors, and officers must clearly treat the corporation as an entity separate and distinct from themselves.
Who handles what:
Shareholders own the business and elect directors. Shareholder input may be required for certain board decisions.
The board of directors directs and manages the business and its affairs, and elects, appoints, or hires any officers.
The board of directors itself may have officers, such as president of the board or board secretary, etc. In general, though, the idea of corporate officers refers to operational or executive officers, who may be elected, appointed, or hired by the board to execute day-to-day operations under board direction. (A corporation may have board officers and operational officers. Board officers are directors and are liable as managers (more below). Operational officers who are not on the board are not liable as managers.)
To Whom You Are Responsible:
Shareholders, directors, and officers are generally not personally liable for the corporation’s obligations. Thus, shareholders’, directors’, and officers’ personal assets are not generally reachable by the corporation’s creditors or others to whom the corporation may be liable. Shareholders generally have no liability risk beyond the price paid for their shares.
(Warning: Where parties personally guarantee a debt or obligation, they cannot avoid personal liability for such guarantee.)
Limited liability rests on the valid existence of a separate and distinct entity. Thus, in spite of their general limited liability, shareholders may be held personally liable for acts carried out in the corporate name before the corporation is formed, in cases of defective incorporation, or in cases in which the corporate veil is pierced because the corporation is not treated by its participants as separate and distinct.
Directors are generally liable to the corporation and to shareholders for managerial decision-making. Corporate directors are in a position of trust and confidence, and therefore generally owe fiduciary duties of loyalty and care to the corporation. Under the duty of loyalty, directors must act in the corporation’s best interests, in spite of any conflicting self-interest. Directors must refrain from doing anything that would injure the corporation or deprive it of any profit or advantage. Directors must not usurp corporate opportunities.
Under the duty of care, directors must carefully consider all material information in making business decisions. Directors must not act with gross negligence or reckless indifference to, or fail to act in light of, the available information.
When considering board decisions, courts generally apply the “business judgment rule”  when possible to respect the board as ultimate business manager, and to presume that board decisions are informed, made in good faith, and made under belief of the corporation’s and shareholders’ best interests. (This is not the case if there is evidence of director fraud, bad faith, or self-dealing.)
In most states, directors generally have an implied duty of good faith and fair dealing in carrying out their corporate rights and responsibilities.
In most states, directors generally have an implied duty of good faith and fair dealing in carrying out the terms of any agreement.
Per state law, and depending on corporate structuring, shareholders and officers may owe fiduciary or good faith duties.
In most states, all parties who enter into contracts have an implied contractual duty to carry out the terms of any contract in good faith and with fair dealing.
The corporation is liable for its debts, obligations, and liabilities to clients, customers, creditors, and anyone who incurs injury as a result of its goods or services, or wrongful or negligent actions.The corporation and all participants are responsible for complying with any and all applicable laws, rules, regulations, procedures.
Your power to affect the business structure:
An S–corp may have only one (1) class of stock, with no differences in income or distribution entitlements, but within that single class there may be voting and nonvoting shares.
Other than ownership size and eligibility, S-corp structuring is identical to C-corp structuring.
How long your business lasts:
An S – corp may exist in perpetuity.
How you get paid:
Shareholders may receive equity distributions. Shareholders who are employees may receive employee compensation.
Officers are generally employees, and may receive employee compensation. 
Directors may receive compensation for director services as independent contractors, not employees. 
Directors who receive director services compensation and are also officers or shareholder employees may receive compensation that is in part independent contractor compensation, and in part employee compensation. 
Your S-corporation may use a cash, accrual, special, or hybrid accounting method that clearly reflects the business’s income and expenses.  Many corporations will use the accrual method. Corporations with average annual gross receipts exceeding $5 million must generally use the accrual method. The accrual method must generally be used for sales and purchases of inventory, but qualifying small business taxpayers may be excepted. Corporations should consider the accounting methods of related entities.
Keep accurate records, and maintain supporting evidence for your entries.
Please consult an accountant regarding your particular circumstances.
The corporation generally does not pay separate taxes (although it may be taxed on certain built-in gains and passive income).  The character of S–corp income, losses, deductions, and credits are determined and reported at the entity level, and the corporation files an informational return. Income and other items pass through the entity to be taxed to the shareholder at the shareholder’s tax rate. Shareholders include their pro-rata share of the business’s income and losses on their personal returns.
Although shareholder employee compensation passes through the entity, employee shareholders are not considered self-employed. Their compensation is subject to payroll taxes (paid in part by the entity, and in part by the employee), but distributions over and above reasonable employee compensation are not subject to payroll tax. (Ex: S-corp earns $100,000 in income. Shareholder employee receives $70,000 in reasonable employee compensation, and $30,000 in corporate distributions. $70,000 is subject to payroll tax, $30,000 is not.)
The IRS realizes that S–corps may attempt to re-characterize employee compensation as corporate distributions in an effort to wrongfully avoid payroll taxes.  To pass muster with the IRS, compensation must be reasonable.  While the IRS seeks to ensure that C-corp shareholder employee compensation is not artificially high to avoid the double dividend tax, it seeks to ensure that S-corp shareholder employee compensation is not artificially low to avoid payroll tax.
Wages to shareholder employees may vary, but any shareholder distributions must be allocated pro-rata per ownership percentage. No special allocations are allowed.
The costs of certain fringe benefits (notably, health insurance) must be included in the employee wages of shareholders owning more than two percent (2%) of the corporation.
The shareholder’s ability to deduct losses is limited to the shareholder’s basis in corporate stock and any indebtedness the corporation owes to the shareholder. Other corporate debt is not included in shareholder basis.
In certain cases in which the S-election was not made upon corporate formation, the entity may pay tax upon sale of appreciated assets. 
An S-corp is generally eligible for tax-free merger with another corporation. 
Annual State Business Filings and Formalities:
S-corporations must generally file annual reports with the Secretary of State, and pay required annual fees. Additional filings may be required, such as upon events like changes in issued shares or paid in capital, or merger or consolidation.
Your corporation must generally hold at least one annual shareholders’ meeting, and shareholders must receive proper notice of meetings. Your state may require that shareholders receive notice in writing a specific number of days before particular meetings. Please refer to your statute. Always record minutes of shareholders' meetings, and maintain these among your corporate records.
Your state may require at least one annual board meeting. Directors must generally hold regular meetings to carry out managerial business, and should record meeting minutes, resolutions, and all board actions, and maintain these corporate records.
Your corporation must keep corporate books and records, and make these reasonably available to shareholders. Certain books or records may be required to be available at shareholders’ meetings. Consult your state act.
Consult your state business corporation act regarding the various rules and formalities applicable to your corporation.
An S-corp may be a good choice if your business will benefit from corporate structuring and third party understanding, but does not require broad-based shareholder financing. Pass through taxation and no FICA withholdings on proper post-compensation distributions are advantageous, but an S-corp also has some tax disadvantages when compared to partnership pass through taxation; available for multi-member LLCs. Although all such LLC member income is subject to FICA, the S-corp does not allow special allocations while the partnership-taxed LLC does, and unlike the LLC, S-corp shareholder basis does not include general corporate debt. As such, if you expect your business to incur start-up losses, both S-corps and LLCs allow shareholders and members to personally deduct these, but greater deductions are possible for partnership-taxed LLC members. Additionally, transfers of property to an S-corp in exchange for ownership are only tax-free if immediately after the transfer the transferor controls eighty percent (80%) or more of the corporation’s total voting power. Partnership-taxed LLC member contributions made in exchange for partnership interest are generally tax-free regardless of ownership percentage, or whether made upon formation or over the life of the entity.
That said, while certain investors may have difficulty investing in any pass through tax entity, S-corp or LLC, an S-corp is more easily merged with or converted to a C-corp, and is more widely understood than the LLC, making the S-corp a potentially reasonable “starter-entity” for a business that may eventually seek venture capital or broad-based shareholder investment. Additionally, an S-corp may be more advantageous for multi-state market recognition, as the LLC receives disjointed treatment nationally. As well, the LLC’s case law is less developed, and some states may require substantial LLC formation and annual filing costs.
Depending on your circumstances, an S-corp may be a good business form if you know you will not require more than 100 eligible shareholders, your business does not require broad-based capital financing, your business can benefit from general corporate tax advantages, S-corp pass through taxation, limited liability, and corporate structuring, and you have a good understanding of and ability to formally recognize the corporate entity.
 Grantor trusts, qualified subchapter S trusts (QSSTs), electing small business trusts (ESBTs), voting trusts, qualified revocable trusts for a reasonable estate administration period, for a limited period- trusts created under estates, under certain acts of law- custodial arrangements of certain foreign trusts, tax-exempt retirement plan trusts. I.R.C. § 1361 (1986).
 See I.R.C. §§ 3121 (d)(1), 3306 (i), and 3401 (c) (1986).
 I.R.S. Pub. 15-A, Employer’s Supplemental Tax Guide 5 (2013), available at http://www.irs.gov/pub/irs-pdf/p15a.pdf.
 See Renewed focus on S Corp. Officer Compensation, AICPA Tax Division’s S Corporation Taxation Technical Resource Panel, Tax Advisor 280 (2004), available at http://www.thefreelibrary.com/Renewed+focus+on+S+Corp.+officer+compensation.-a0116671220.