Note: This is a general information “basics” article. For more information, see FAQ #4.
S Corporations Overview
An S corporation is a business corporation with a limited number of shareholders whose income is taxed through its shareholders rather than the corporation itself.
S corporations are defined in the Internal Revenue Code (26 U.S. Code § 1361) which also provides an extensive list of requirements for eligible types of shareholders. S corporations are often run by families, so there are special rules involving the treatment of related individuals.
Of note is that S corporations typically avoid corporate income tax and corporate losses can be claimed by shareholders. Rules for pass-thru of liabilities and deductions are set forth in 26 U.S. Code § 1366.
S corporations are frequently referred to as “small businesses,” however this term can be misleading. Although S corporations are “small” from an ownership standpoint, this corporate structure can support very large enterprises.
- Legal Information Institute, “Internal Revenue Code: Subchapter S,” Cornell Law School.
- FindLaw, “S Corporations: An Overview.”
- The Internal Revenue Service, “S Corporations.”
Photo: Chris Davis.