In the section dealing with "C-Corporations", we reviewed the characteristics of the standard US corporation, the C-Corporation, which is liable for tax on all of its income, irrespective of the place of its derivation. The corporate structure of the second type of corporation - the S-Corporation, is almost the same.

     The name S-Corporation indicates that these entities are taxed under subchapter "S" of the Internal Revenue Code of the USA - i.e., the difference between a C-Corporation and an S-Corporation lies only in the way in which they are taxed, whereas their corporate structure is identical.

     A C-Corporation can submit an application (i.e. form 2253), electing for taxation as an S-Corporation.

     S-Corporations are taxed under the so-called "pass-through" principle, i.e. taxation of the income derived by an S-Corporation takes place not at the level of the corporation, but is directly "passed through" to its shareholders in the appropriate proportions. It should be noted that a corporation has the right to elect for S-Corporation status only if all its shareholders are resident in the USA.

     The following table provides comparative characteristics for both S-Corporations and the most popular type of US company - the LLC: