Small-Business Corporation Law & Legal Definition


Small Business Corporation is a corporation having no more than 75 shareholders and otherwise satisfying the requirements of the Internal Revenue Code provisions permitting a subchapter S election. Once a corporation makes the Subchapter S election, profits and losses are passed through the corporation and are reported on the individual tax returns of the respective shareholders of the S corporation.

A small business corporation can also be a corporation receiving money for stock as a contribution to capital and paid-in surplus totaling not more than $1,000,000, and otherwise satisfying the requirements of the Internal Revenue Code (26 USCS § 1244 (c)) which enables the shareholders to claim an ordinary loss on worthless stock.

26 USCS § 1361 defines Small business Corporation as follows :

The term 'small business corporation' means a domestic corporation which is not a member of an affiliated group (as defined in section 1504) and which does not

(1) have more than 25 shareholders;

(2) have as a shareholder a person (other than an estate and other than a trust described in subsection (e)) who is not an individual;

(3) have a nonresident alien as a shareholder; and

(4) have more than one class of stock.