Final answer:
An S-corporation offers limited liability, the ability to raise more capital, and potential tax advantages compared to a sole proprietorship.
Step-by-step explanation:
An S-corporation, also known as an S-corp, offers several advantages over a sole proprietorship. One of the main reasons to choose an S-corp over a sole proprietorship is to limit personal liability. In a sole proprietorship, the owner is personally responsible for all business debts and liabilities, which can put their personal assets at risk. However, in an S-corp, the owners' liability is limited to their investment in the business, protecting their personal assets.
Another advantage of an S-corp is the ability to raise more capital. S-corps can have multiple shareholders who can contribute assets and money to the business. This can make it easier to obtain financing and expand the business.
Additionally, S-corps offer potential tax advantages. Unlike a sole proprietorship, where the owner is responsible for paying self-employment taxes on all business profits, an S-corp allows the owners to pay themselves a reasonable salary and receive additional profits through dividends, which are taxed at a lower rate.