Is S Corp Better Than Sole Proprietorship?

Unlike Sole Proprietorships, an S Corporation offers limited liability protection. This means the owners are not personally liable for the debts and obligations of the S Corp. To qualify as an S Corporation, your business must meet certain criteria, such as not having more than 100 shareholders.
A corporation can be transferred; this option is not available with a sole proprietorship. When you decide to close your business, your sole proprietorship ceases to exist and cannot be transferred. Shareholders in a corporation may hold different share classes. However, starting and maintaining records for a corporation is more expensive and regulated than a sole proprietorship.

S corporations pass all taxable income, deductions, credits and losses directly to shareholders without paying federal taxes. This provides an advantage over C corporations, which face double taxation. However, S corporations must divide profits and losses based on percentage of ownership, while an LLC’s owners can divide profits however they want.
S corporations face barriers like limiting owners to 100 or fewer shareholders who must be US persons. They must also hold annual meetings and appoint a board of directors. Moreover, shares or membership cannot be held by most partnerships, LLCs, trusts or other corporations.

Your decision of the best entity among Sole Proprietorship vs S Corp will also be affected by the scalability it offers. Sole proprietors often do the majority of the work for the business. If sole proprietors choose to hire employees, getting an EIN becomes necessary at this point.
As a sole proprietor you pay income tax on all income, but with an S Corp you only pay taxes on your set salary. In the end, an S Corporation may be better if you wish to limit personal liability, avoid double taxation, raise capital or issue stock. However a sole proprietorship might be better if you have a small business without employees or liability concerns.