S Corporations elect to pass corporate income, losses, deductions, and credits through to their stockholders for federal tax purposes. Stockholders report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates which allows them to avoid double taxation on the corporate income. However, the main limitations to S-Corps are that they must be owned by individuals (with a few exceptions for certain kinds of trusts), they cannot have more than 100 stockholders and they can only have one class of stock.
Glossary