The only difference between an S corporation and a C corporation is how the corporations and their shareholders are taxed. By default, a corporation will be a C corporation unless the shareholders elect Subchapter S status by filing Form 2553, “Election by a Small Business Corporation”, with the IRS. If a corporation has not elected Subchapter S status, the corporation will have to pay income tax on all of its income. If the corporation then distributes that income to its shareholders, the shareholders will have to pay income tax on those distributions. This results on double taxation (once at the corporate level and again at the shareholder level). On the other hand, if a Subchapter S election has been made, as a general rule, there will be no tax on the corporation and the income will be taxed only to the shareholders. Subchapter S corporations often are referred to as “pass-through entities” since, for tax purposes, the income is treated as if it passes through the corporation without taxation to the shareholders who then pay income tax only once on this income. Limited Liability Companies (LLC) and partnerships also are “pass-through entities.”