Subchapter S (S Corporation)

DEFINITION of 'Subchapter S (S Corporation)'

A form of corporation that meets the IRS requirements to be taxed under Subchapter S of the Internal Revenue Code. This gives a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership. This means that any profits earned by the corporation are not taxed at the corporate level, but rather at the level of the shareholders. Also known as "S corporation".

BREAKING DOWN 'Subchapter S (S Corporation)'

Having S corporation status can prove a huge benefit for a corporation. The corporation can pass income directly to shareholders and avoid the double taxation that is inherent with the dividends of public companies, while still enjoying the advantages of the corporate structure. In order to qualify, a corporation must be a small business corporation. This means the following requirements must be met:

1) Must be a domestic corporation
2) Must not have more than 100 shareholders
3) Must include only eligible shareholders
4) Must have only one class of stock


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