We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Subchapter S Corporation?

By Matt Brady
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

In the United States (U.S.), a Subchapter S corporation, also known as an S corporation or an S corp, is a kind of small corporation that blends the advantages of a partnership and a corporation. This kind of corporation is named Subchapter S because it qualifies for being taxed under Subchapter S of the U.S. Internal Revenue Code. This allows a Subchapter S corporation to enjoy the federal tax benefits of a partnership while also enjoying the limited personal liability that protect corporations.

By qualifying for Subchapter S taxation, a Subchapter S corporation avoids having to pay the corporate tax that most other corporate structures must pay. Instead of being double taxed, once at the corporate level and then at the shareholder level, Subchapter S corporations are legally allowed to pay taxes only on shareholders' income. A business owner or shareholder under a Subchapter S structure may be able to retain significant profits by avoiding taxation at the corporate level. Another way of eliminating corporate taxation is to structure a business under a partnership, but this leaves a business without the limited liability benefits of a corporation, meaning that if a partnership went under or was being sued, the owners' personal assets could be targeted.

Under a Subchapter S corporation, shareholders' personal assets are protected by the corporate structure, which exists as its own entity, but the shareholder is still free to enjoy all the tax benefits of a partnership. Some U.S. states have an equivalent tax plan for this kind of corporate structure as well, though rules and availability vary by state. As a result, professional financial and legal consultation is advised to help aid the process as well as to assess whether a Subchapter S classification is the right fit for a certain business.

The requirements listed to qualify as a Subchapter S corporation can be stringent. Generally, no more than 100 shareholders can be involved in the company. The shareholders must meet certain eligibility requirements, and there are also limits on what class of stock a Subchapter S corporation can issue. A business may initially structure itself under a Subchapter S classification, only to decide that its growth model isn’t suited for that kind of corporate structure. Fortunately, with some money and the right legal council, a business can easily transition to a different status of corporation if a Subchapter S status isn't the right fit. On the other hand, larger corporations with more than 100 shareholders may have a harder time converting into a Subchapter S structure.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.