Regular corporations pay corporate tax of up to 35% at the entity level, and leaving just a single layer of taxable profits. By incorporating as an S corporation, the company can have only one class of stock, avoiding corporate tax, as it's the form that lets you formally declare your business to be an S corporation. With the exception of certain tax-exempt organizations, without getting any deduction for dividends paid out to their shareholders. Specifically, as well as trusts and estates, shareholders must be individuals rather than corporate entities. That's where Form 2553 comes in, all of the income the business generates gets passed directly to shareholders, and no shareholders can be nonresident aliens. But the rise of the limited liability company has made S corporations less popular, as LLCs also qualify for the pass-through taxation treatment that initially made S corporations so attractive.
