An S-Corporation is a regular corporation that has between 1 and 100 shareholders and that passes through net income or losses to its shareholders.  Subchapter S-Corporations must meet specific eligibility criteria, and they must notify the IRS of their choice to be taxed as an S-Corporation within a certain period of time.

An S-Corporation is not subject to corporate tax rates.  Generally, an S-Corporation is exempt from federal income tax other than tax on certain capital gains and passive income.

Instead, an S-Corporation passes through profit (or net losses) to its shareholders.  The business profits are taxed at individual tax rates on each shareholder's Form 1040.  The pass-through or flow-through nature of the income means that the corporation's profits are only taxed once - at the shareholder level.

S-Corporations therefore avoid the so-called double taxation of dividends.

One important point, only one class of stock can be issued.

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