Final answer:
An S corporation election is made by filing Form 2553 with the IRS, allowing income to pass through to shareholders and be taxed at individual rates. It is a tax designation suited for smaller, closely held corporations and is distinct from public corporations, which involve stock ownership and broader shareholder involvement.
Step-by-step explanation:
To make an S corporation election, a company must file Form 2553 with the Internal Revenue Service (IRS). The election involves a specific tax filing status for corporations that meets the IRS requirements to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. An S corporation allows income to be passed through directly to shareholders and be taxed at individual rates, rather than being subject to corporate tax rates.
This is different from a public company, where ownership is through the buying and selling of stock and is owned by shareholders, who vote for a board of directors to manage the company. An S corporation tends to be a smaller, more closely held company in comparison to a public corporation, and thus, not all corporate entities are eligible for S corporation status. The shareholders must all agree to the election, but the formal process requires submission of the correct form to the IRS, not a submission to the Federal Trade Commission (FTC), a letter to the Securities and Exchange Commission (SEC), or filing a Form 1040.