S Corporations and Common Stock (S-Corps)

Definition

An S corporation is a state-law corporation that has elected under Subchapter S to pass its income, losses, and credits through to its shareholders, so the corporation generally pays no federal income tax itself.^[1] It may have no more than 100 shareholders^[2] and only one class of stock, so it issues common stock; shares that differ only in voting rights still count as one class.^[1]

Federal law

Formed under state law. No Act of Congress creates it; the federal laws below apply to it as described.

1. Subchapter S Revision Act of 1982, Pub. L. 97-354, § 2, 96 Stat. 1669. Rewrote Subchapter S: defined S corporation and small business corporation (one class of stock, with differences in common stock voting rights disregarded) and provided that an S corporation is generally not subject to corporate income tax (26 U.S.C. §§ 1361, 1363). Official text: govinfo.gov, U.S. Government Publishing Office.
2. American Jobs Creation Act of 2004, Pub. L. 108-357, § 232, 118 Stat. 1434. Raised the shareholder limit in 26 U.S.C. § 1361(b)(1)(A) from 75 to 100, for taxable years beginning after December 31, 2004. Official text: govinfo.gov, U.S. Government Publishing Office.