How to form a C corporation

What is a C corporation?

A corporation is a legal entity owned by shareholders, overseen by a board of directors and run day to day by officers. One person can hold all three roles. "C corporation" is a tax term: every corporation is taxed under Subchapter C of the tax code unless it elects S corporation status. So forming a corporation with a state gives you a C corporation automatically. See LLC vs S corp vs C corp.

How do you form one, step by step?

1. Choose the state and name

   Usually your home state, or Delaware if you plan to raise venture capital.

2. Appoint a registered agent

   With a physical address in the state of incorporation.

3. File the articles of incorporation

   They set the name, the registered agent and the authorized shares.

4. Adopt bylaws and appoint directors

   The board then appoints the officers.

5. Issue stock to the founders

   Record each issue in a stock ledger.

6. Get an EIN and a bank account

   Then register for state taxes and payroll.

What goes in the articles of incorporation?

• The corporation's name, with an ending such as "Inc.", "Corp." or "Corporation".
• The registered agent and registered office.
• The number of shares the corporation is authorized to issue, their classes and any par value.
• The incorporator, who signs and files the document.

Some states also ask for the first directors or the business purpose. The articles are public. The bylaws, which set out how the corporation is run, are not filed.

How many shares should you authorize?

Enough for the founders, future employees and investors, without creating a needless cost. In some states the number of authorized shares affects fees or taxes. Delaware is the best-known example: its default franchise tax calculation is based on authorized shares. See Delaware C corp for startups. A small family business might authorize a few thousand shares. A startup expecting investors usually authorizes millions.

What happens at the first board meeting?

The directors, meeting or acting by written consent, adopt the bylaws, appoint officers, approve the issue of stock to the founders, adopt a fiscal year, and authorize a bank account. Keep the signed minutes or consents with the corporate records. Founders pay for their shares, in cash or by assigning property such as intellectual property, and the corporation records the issue.

What is an 83(b) election?

If founders' shares vest over time, the default rule taxes them as the shares vest, on the value at that point. An 83(b) election lets a founder choose to be taxed at the time of the grant instead, when the value is usually very low. It must be filed with the IRS within 30 days of receiving the shares, and the deadline cannot be extended. The IRS provides Form 15620 for the election.

How is a C corporation taxed?

It pays federal income tax at a flat 21% on its profit, on Form 1120. Salaries it pays, including to owners who work in the business, are deductible. Dividends are paid from after-tax profit and taxed again in shareholders' hands. A corporation that qualifies can elect S status within 2 months and 15 days of the start of its tax year. See Form 2553.

See C corp double taxation.

What must a corporation keep up?

• Annual shareholder and board meetings, or written consents, with minutes.
• A stock ledger showing who owns which shares.
• The state's annual report and any franchise tax.
• Form 1120 each year, and estimated tax if it expects to owe $500 or more.
• Registration in other states where it does business. See registering in another state.

C corporation or LLC?

A C corporation suits businesses that will raise money from investors, grant stock options or reinvest most of their profit. An LLC suits owners who want simpler upkeep and a single layer of tax. Founders living outside the US should also read LLC or C corp for a foreign founder.

This guide is general information. It is not tax or legal advice for your situation.