S corporation

Definition

An S corporation is a type of corporation that meets specific Internal Revenue Code requirements, allowing it to be taxed as a pass-through entity, thereby avoiding double taxation on corporate income. This structure combines the legal protection of a corporation with the tax benefits of a partnership.

Related terms

Pass: through entity - A business structure where the earnings are passed directly to owners and shareholders without being subject to corporate tax rates.

Double taxation: This occurs when income is taxed at both the corporate level and again at the individual level when distributed as dividends to shareholders.

Shareholder: An individual or institution (including a corporation) that legally owns one or more shares of stock in a public or private corporation