What is S corporation (S-corp)?

S corporation (S-corp) is a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. Unlike a regular corporation (C corporation), a S corporation generally pays no corporate taxes on its profits. The shareholders pay income taxes on their proportionate shares of the S corporation’s profits. In order to make the election to be treated as an S-corporation, the corporation must have no more than 75 shareholders who are U.S. citizens or permanent residents (natural persons, not corporations or other legal entity), and the corporation must have only one class of stock.