S-Corporation definition. Analyzing the definition of key terms often provides more insight about concepts. S-Corporation can be defined as – Corporation that meets tax qualifications so as to be treated like a partnership for income tax purposes. The S-corporation format of entity is an attempt to achieve some of the benefits related to a C-corporation and partnership. A C-corporation, the default Corporation, provides a level of liability protection to the owner’s, shareholders, because the corporation is a separate legal entity. The downside of a corporation being a separate legal entity is that a C-corporation pays taxes at the corporate level and also pays taxes when that income is distributed to shareholders in the form of dividends. A partnership does not have the same degree of liability protection but does avoid the double taxation by allowing partnership income to be reported on the individual Form 1040. The S-Corporation retains a higher level of liability protection while also being a flow-through entity, revenue flowing through to shareholder’s Form 1040s, this flow through eliminating double taxation.
