• Special tax status with the IRS-defined in Subchapter S of the Internal Revenue Code
• Offers limited liability protection, so shareholders (owners) are typically not personally responsible for business debts and liabilities.
• Pass-through entity
• Separate legal entity created by a state filing
• Formation documents (Articles of Incorporation or Certificate of Incorporation) must be filed with the state.
• Form 2553 must be filed with the IRS and State to elect S corporation status
• Structure includes shareholders, directors and officers.
• Required to follow internal and external corporate formalities and obligations.
• Restricted to no more than 100 shareholders and shareholders must be US citizens/residents.
• Cannot be owned by C corporations, other S corporations, LLCs, partnerships or many trusts.
• Only one class of stock (disregarding voting rights).
• A corporate tax return (Form 1120S) must be filed, but no income tax is paid at the corporate level.
• The profits/losses of the business are instead “passed-through” the business and reported on the owners’ personal tax returns. Any tax due is paid at the individual level by the owners.
• Personal income tax is due both on any salary drawn from the corporation and from any dividends received from the corporation.