S corporations (also known as Subchapter S corporations) are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements:
Be a domestic corporation
• Have only allowable shareholders
o may be individuals, certain trusts, and estates, and
o may not be partnerships, corporations, or non-resident alien shareholders
• Have no more than 100 shareholders
• Have only one class of stock
• Not be an ineligible corporation (i.e., certain financial institutions, insurance companies, and domestic international sales corporations).

In Arkansas, as in other states, S corporations are recognized as pass-through entities for federal tax purposes, meaning they pass income, losses, deductions, and credits to their shareholders, who then report these on their personal tax returns. This structure allows S corporations to avoid the double taxation that C corporations face, as income is only taxed at the shareholder level. To be eligible for S corporation status, a corporation must be domestic, have allowable shareholders (individuals, certain trusts, and estates, but not partnerships, other corporations, or non-resident aliens), have no more than 100 shareholders, have only one class of stock, and not fall into the category of ineligible corporations, such as certain financial institutions, insurance companies, and domestic international sales corporations. Arkansas state law generally conforms to federal law regarding the treatment of S corporations, and these entities must also comply with state-specific regulations and tax obligations.