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S Corporation Definition

S corporation – n : a form of legal organization for a business, commonly used only by small and/or closely-held companies (the "S" refers to Subchapter S of the U.S. Internal Revenue Code). S corporations are “pass-through” entities for tax purposes; that is, they pay no corporate tax, and all financial profits or losses “pass through” or “flow through” proportionately to the shareholders on a pro rata basis. This form of organization can be advantageous for shareholders, because: a) it avoids double taxation; and b) individual shareholders can receive the tax benefits of a business’s losses. However, an S corporation can have no more than 75 shareholders and is subject to limitations as to whom or what type of entity can own the business. (Note: See also LLC or limited liability corporation, another form of business legal organization that shares the “pass-through” feature of the S corporation.)

Adapted from "The CompanyCrafters Entrepreneur's Dictionary"
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