What is an S Corporation?
An S Corporation is a U.S. corporation that has elected to be taxed under Subchapter S of the Internal Revenue Code. The entity itself pays no federal income tax; instead, income, losses, deductions and credits pass through to shareholders’ personal returns, avoiding the double taxation that applies to C Corporations.
S Corps are limited to 100 shareholders, all of whom must be U.S. citizens or residents (or certain trusts/estates), and may issue only one class of stock. These constraints make S Corps unsuitable for institutional venture capital, so VC-backed startups generally use C Corporations instead.