First of all, the entities are taxed differently. And, an S Corp has
restrictions on the number and identity of its owners (no more than 100 owners; cannot be owned by another corporate entity or foreign national). Also, an S Corp has only one class of stock, which limits the permutation of ownership interests that you can have.
How do you know which one to choose? Look carefully at your goals for the business. Will you want to seek venture capital funding? Will your company have more than one owner (and if so, will all owners be actively involved in the business)? Who will own your company (and where do they live)? What do you want to pay in taxes? What is your exit strategy for the business?
Your first step is to answer these questions and then to choose the form that will best meet those goals--rather than choosing a form and contorting your business to fit it.
Discuss your options with a local attorney and accountant so that you can make the choice that's right for you.
Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.