An S corporation is a corporation created under state law that elects to be treated as a pass-through entity (like a sole proprietorship or partnership) for tax purposes. Since all corporate income is "passed through" directly to the shareholders who include the income on their individual tax returns, S corporations are not subject to double taxation. Moreover, the accounting for an S corporation is generally easier than for a C corporation.

S corporation formation requires filing with the appropriate state agency as well as a filing fee just like a C corporation. In addition an additional tax election form must be completed to designate the subchapter S status.