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 California, S corporations are recognized similarly to federal law, allowing income to pass through to shareholders to avoid double taxation. Shareholders report income and losses on their personal tax returns, taxed at individual rates. California S corporations must pay a 1.5% franchise tax on income, with a minimum tax of $800. To qualify, 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, only one class of stock, and not be an ineligible corporation (like certain financial institutions). Additionally, California requires S corporations to file Form 100S, pay estimated taxes, and ensure all shareholders consent to the S corporation election.