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 North Carolina, as in other states, S corporations are recognized as pass-through entities for federal tax purposes, meaning that income, losses, deductions, and credits are passed through to shareholders instead of being taxed at the corporate level. This structure avoids the double taxation that C corporations face, as shareholders report their share of the corporation's income or loss on their personal tax returns and pay tax at their individual rates. North Carolina conforms to the federal treatment of S corporations, and state tax is also assessed at the shareholder level. To be eligible for S corporation status, a corporation must be a domestic entity, restrict its shareholders to allowable individuals, certain trusts, and estates (excluding partnerships, corporations, and 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. It's important for corporations considering the S corporation election to comply with both federal Internal Revenue Code requirements and any relevant North Carolina statutes.