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Subchapter S Corporation

Definition - What does Subchapter S Corporation mean?

A Subchapter S corporation is a corporation that has less than 100 shareholders, and has some benefits enjoyed by larger corporations, but is taxed differently to them. Subchapter S corporations allow for limited liability for the owners, but they allow income to be passed through straight to shareholders. This means that profits are only taxed at the shareholder level, and not at the corporate level.

Justipedia explains Subchapter S Corporation

An example of a Subchapter S corporation would be a retail clothing store that has 80 shareholders. In this case, the owners of the business would be protected from being personally liable for company debts or damages. However, the clothing company would not have its profits taxed at the corporate level. So, these types of corporations allow some of the benefits of major corporations without having to pay all of the taxes of them. That is why incorporating in this way can be appealing to small businesses.

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