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What is an S corporation?

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An S corporation is a formal business structure that company owners can set up under Subchapter S of the Internal Revenue Code. This type of business allows owners to take advantage of some benefits of a limited liability company along with some tax advantages of a corporation.

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A major benefit of an S corporation is the ability to pass company earnings through owners, which means taxes are only paid once on each owner's profits. One of the primary distinctions between an S corporation and a C corporation is the IRS-imposed limit of 100 shareholders. S corporations are treated as separate entities from owners, which offers some personal financial protection. However, owners are still at risk for personal negligence lawsuits from customers and employees.

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