S corporation

An S corporation is a corporation that has complied with certain federal tax laws and has elected to be taxed as a partnership, rather than as a corporation. S corporate status is preferred by some small businesses because the individual operators can apply the businesses losses to their personal income, and the double taxation problem faced by C corporations is avoided. In addition, the corporate form provides for limited personal liability for the business's contracts and torts. Restrictions on the number and type of shareholders and shares in a S corporation may limit the entity's universal appeal:

• no more than 75 shareholders (100 shareholders for tax years beginning after 2004)
• shareholders can only be individuals, estates, or certain trusts; no foreign or corporate shareholders
• only one class of stock (although voting rights can differ)