An S corporation is regarded as a corporation under the law of the state in which it is organized. S corporations are taxed under Sub-chapter S of Chapter 1 of the Internal Revenue Code, in turn giving them the name of S corporation. The corporation's income or losses are divided among its shareholders and they do not pay any income tax. The shareholders report the income or loss on their own individual income tax returns. S corporation status provides many of the benefits of partnership taxation and, at the same time, gives the owners limited liability protection from creditors. For more information, contact an attorney in your area.