Subchapter S corporation definition

All "for profit" corporations begin life as a C corporation. Incorporated small businesses may elect to convert to what is called a Subchapter S status, with the primary reason being for tax purposes.

A C Corp is a taxpaying entity, but while an S Corp must file a tax return, it's not a taxpaying entity, since all income and losses flow through to the individual returns of the shareholders.

An S Corp is formed under state law in the same way as a C Corp and provides the same liability protection for shareholders as a C Corp.

Pay close attention to the specific requirements for converting from a C Corp to an S Corp with respect to when and how it can be done.

Always talk with your tax and legal advisors about your personal circumstances.