An S Corporation is a corporation that qualifies to be taxed under chapter S of the Internal Revenue Code. This type of company is not taxed at the corporate level. Its shareholders, instead, are taxed on income they receive. However, to receive this tax advantage, an S Corporation has restrictions that a C Corporation does not have. To qualify as an S corporation, the shareholders must elect to have subchapter S status. They must agree, and the corporation must meet the definition of a “small business corporation.” A corporation is a small business corporation if it has fewer then 75 shareholders and must be a domestic corporation. These shareholders must be individuals, estates or certain qualifying trusts. S corporations cannot have corporations, partnerships or LLCs as shareholders. Shareholders must also be U.S. citizens and residents. The corporation must only issue one class of stock.

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