Among other purposes, shareholder basis will determine how much loss a shareholder can recognize on his or her individual income tax return and whether distributions will be nontaxable to the shareholder.
Generally, losses can be used to the extent of stock basis and debt basis from the shareholder to the corporation. Generally, distributions will be nontaxable to a shareholder up to stock basis unless the corporation has earnings and profits (in which case, the shareholder might have dividend income to