S Corporation Definition

A term that describes a profit-making corporation whose shareholders have applied for and received subchapter S corporation status from the Internal Revenue Service (IRS). Electing to do business as an S corporation lets shareholders enjoy limited liability status, as would be true of any corporation, but be taxed as a pass-through tax entity, where income taxes are reported and paid by the owners, like a partnership or sole proprietor. (A regular, or C, corporation is taxed as a separate entity from its owners.) To qualify as an S corporation, a number of IRS rules must be met, such as a limit of 100 shareholders and U.S. citizenship for all shareholders.