S Corporation
Categories: Incorporation, Board of Directors
See sole proprietorship, limited liability corporation, and C corporation.
An S corporation is a type of incorporation for a company which "fits" for companies with 100 shareholders or less. In this case, a company's profits aren't taxed twice when paying out profits to shareholders.
Example
Kendra's Kazoo Factory has 50 shareholders and made $5M in profits, pre-tax, last year. Normally her company would pay $1.5M in taxes and then only have $3.5M to pass through to the 50 employees. Those employees then pay their personal individual income tax on that $3.5M. Figure it's about 40% is and the $3.5M turns into $2M after taxes. So we've taken $5M in profits and turned it into $2M by giving over $3M to the Taxman.
But in an S Corporation type of incorporation, there's no corporate slice of $1.5M meat—instead, all $5M is passed through to the 50 employees who then pay their 40%ish tax and the $5M turns into $3M instead of $2M.
Definitely a better deal for the people who worked hard to earn that money.