What is an S Corporation?
An S Corporation is a special type of corporation, which is denoted by subchapter S of chapter 1 of the Corporation code. In most parts it has all the benefits of a C Corporation. The fundamental difference lies in how the corporation is taxed.
An S Corporation is Taxed on the Shareholder level, and does not pay Corporate income tax.
What's different about an S Corporation?
An S Corporation has these special traits
- Taxes are passed through to the shareholders, and are reported as Personal Income (or loss).
- Only one class of stock may be issued.
- No corporate ownership of stock is allowed.
- Shareholders must usually be US Citizens.
Who should form an S Corporation?
Generally speaking, an S Corporation should be started by someone who plans on starting a small business, which may not be profitable in its first few years.