question.jpgIn Business Law

What is an S corporation?

An S corporation is similar to a C corporation in most ways except for how taxes are applied. While a C corporation is a separate tax-paying entity subject to double taxation, an S corporation uses pass-through taxation. This means that the corporation itself does not pay taxes on its profits and losses, and all taxes are instead paid by the owners/shareholders, based on the profits and losses distributed to them.

There are certain requirements which a corporation must meet to be able to declare itself as an S corporation instead of a C corporation. If you are thinking about electing to organize your corporation as an S corporation you should consult with an attorney, but the general requirements are that there must be fewer than 75 shareholders, the election to be an S corporation must be made in a certain amount of time and there can only be one class of stock issued by the corporation.