A S-corporation is a regular corporation that has made an election with the IRS for S status, meaning mostly that the corporation is not taxed and all profit and loss is taxed to the individual shareholders.
The S corporation, like the regular corporation, enjoys limited liability. There is also the same ease of transfer of interests via “stock” and unlimited life of the corporation. However, unlike a regular corporation, a S corporation is limited to 100 shareholders and can only have one “class” of shareholders.
Most importantly, the S corporation does not have the double taxation of the regular corporation. For profit/loss and fringe benefits the S corporation is treated by the IRS much the same as a partnership. Although the corporation files a separate tax return, form 1120S, it is not taxed. Profit or loss is reported via a K-1 on the shareholder’s individual return.
The S corporation is a strange bird. With the structure of a corporation and the flow through of a partnership, the S corporation has rules galore! The IRS form 1120S should not be attempted by someone not very familiar with the rules for S corporations. I’m not a S corporation, but they are my favorite entity.