An S corporation is a corporation created under state law that elects to be treated as a pass-through entity (like a sole proprietorship or partnership) for tax purposes. Since all corporate income is "passed through" directly to the shareholders who include the income on their individual tax returns, S corporations are not subject to double taxation. Moreover, the accounting for an S corporation is generally easier than for a C corporation.

S corporation formation requires filing with the appropriate state agency as well as a filing fee just like a C corporation. In addition an additional tax election form must be completed to designate the subchapter S status.

• Special tax election allows pass through taxation directly to shareholders and the avoidance of "double taxation"
• Accounting for an S corporation is generally easier than for a C corporation
• Enjoys the same level of liability protection as a C corporation
• Enjoys many of the same benefits of a C corporation

• More expensive to form and maintain than sole proprietorships and partnerships
• Have many of the same rigorous ongoing business requirements as does a C corporation
• Several restrictions that are specific to S corporations including
  • Limit of 100 shareholders
  • Shareholders must be US citizens or legal residents
  • Only permitted to have one type of stock
  • Limits on types of income (e.g. passive income from real estate, royalties etc.)