Subchapter S Corporation Legal Meaning and Definition

Here is a simplified definition of the legal term Subchapter S Corporation.

Subchapter S Corporation (noun)

A Subchapter S Corporation refers to a specific type of corporation that is designated by the Internal Revenue Service (IRS). It is so named because it meets the requirements listed in Subchapter S of the tax code. Essentially, it operates like a normal corporation but is taxed like a partnership. In this kind of corporation, the profits or losses bypass corporate taxes and are passed directly to shareholders—essentially letting them avoid the 'double taxation' typical of other corporations. To become a Subchapter S Corporation, a corporation must apply to the IRS and meet specific conditions.