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An S corporation is a unique business structure that combines features of both corporations and partnerships. Often described as a hybrid business entity, it operates as a corporation but offers tax advantages that resemble those of a partnership or sole proprietorship.
Unlike a C corporation, which is subject to double taxation—paying corporate income tax and then shareholders paying taxes again on dividends—an S corporation is designed to avoid double taxation. Instead, it allows income to flow through directly to the shareholders, who report their share of profits or losses on their personal tax returns. This characteristic is often summarized by calling it a pass-through or flow-through entity.