“S” Corporation

A type of corporation that satisfies specific regulations so that is allowed to be taxed under Subchapter S of the Internal Revenue Code. This status permits a domestic company with fewer than 100 shareholders (possessing only a single class of stock) to be taxed as a partnership, meaning that any profits earned are not taxed at the corporate level, but pass through to the individual shareholders to be taxed as personal income. To qualify, shareholders must be natural persons (including employees), eligible non-profit organizations or certain kinds of trusts and estates. Non-resident aliens and corporations cannot serve as shareholders within a company taxed as an S corporation.



While the corporation was frequently praised as an innovator in the field of attracting foreign investment, its executives were frustrated by the fact that the company could not be taxed as an S corporation because it permitted nonresident aliens in its pool of shareholders.