The S-Corporation also known as the subchapter or small business corporation is a tax code that was created and enacted into law by congress in 1958. It was created to encourage small and family business creation while eliminating the double taxation that conventional corporations were subjected to.
Unlike a traditional C-Corporation the S-Corporation must adhere to the following limitations:
- It may not have over 75 shareholders.
- It is required to be a domestic business entity.
- The shareholders of the S-Corporation must be US Citizens or legal
residents of the United States.
- The S-Corporation is restricted to only one class of stock.
The S-Corporation is essentially a tax designation that is recognized by the IRS, similar to the LLC the income generated by an S-Corporation will flow through to the personal income tax returns of the shareholders meaning that the entity is not required to pay taxes on a corporate.
S Corporation tax election status is obtained by the filing of IRS Form 2553 within 75 days of the filing date of the company or by filing the IRS Form 2553 by March 15 of each year.