Incorporate for $49 + state fees (FREE registered agent). Order in 5 minutes or less. Start Now


Forming Your C Corporation


An overview of what a C corp is, the advantages and disadvantages, and how to incorporate

Incorporate Your Business
from $49 - FREE Registered State Agent
Order in 5 minutes or less


Since the 1980s, the number of C corporations has diminished while the total number of pass-through businesses such as S corporations, partnerships, and sole proprietorships has tripled. However, there are still about 1.7 million C corps in the U.S. according to the Tax Foundation.


The C corporation is often overlooked as a viable path to incorporation for the aspiring small business owner, with most entrepreneurs primarily considering only a limited liability company (LLC) or an S corporation. However, deciding to form a C corp can offer certain advantages that other entity types cannot.

On this page, we'll provide a basic overview of C corporations — including what a C corp is, its pros and cons, as well as how to form one. So let's get started...


What is a C Corporation?

A C corporation is one of the most well-established business entity types and is taxed under the subchapter C of the IRC (Internal Revenue Code) as an individual entity. A C corp is legally recognized as a separate entity, apart from its shareholders (owners). This differs from an S corporation, where business profits are passed onto the shareholders and are taxed based on personal returns.

Nearly any publicly-traded U.S. corporation that is registered and traded on the NYSE is a C corporation.

Chart courtesy of the Tax Foundation & IRS

Why Form a C Corporation?

C corporations best serve owners who want the limited liability, the ability to reduce overall income taxes, and more easily raise capital.


Taxation

C corporation shareholders don't report any of the business income and expense on their individual tax return. The corporation files its own tax returns and pays its income taxes — generally, at a lower tax rate than an individual would.

Meanwhile, the individual shareholders report and pay personal income taxes only on income paid to them by the corporation. In this way, corporations can reduce owners' self employment taxes. Since tax rates are lower for corporations, owners can divide profits and accumulate more in the corporation than is possible with pass-through taxation.

Another tax advantage of C corps is you can enjoy tax-deductible business expenses. Plus, corporations are normally audited less frequently than sole proprietorships and partnerships.

It should be noted that shareholders are required to pay income taxes on income from dividends paid by a C corp, even if income taxes have previously been paid by the corporation.

Limited Liability

C corporation shareholders enjoy limited liability for the debts, obligations, and liabilities incurred by the business as well as liability stemming from possible legal action. This protection of shareholders' personal assets is one of the major reasons why business owners choose to incorporate.

Normally, shareholders cannot lose more than the amount they invested in the corporation. If the corporation goes bankrupt, the shareholders will not be held personally liable for its debts. Or should someone sue the corporation and the corporation is found liable, they can take the corporation's property to satisfy the judgment but not the shareholder's personal assets (i.e. home, car, bank account, etc.).

An exception to a shareholder's limited liability happens when the corporation has recklessly harmed people or has been used to perpetuate a fraud. In such rare cases, the owner may be held liable regardless of the entity type.



Employees, Owners & Shareholders

Most employees prefer to work for a corporation that can offer them stock options and stock bonuses.

Also, owners working in a C corp business are considered employees and therefore eligible for certain fringe benefits such as group insurance plans, retirement & profit sharing plans, tax-favored stock option, and bonus plans.

Lastly, shareholders can freely sell their shares in a C corporation and ownership can be easily transferred by selling stock in the corporation.

Raising Capital

Businesses tend to have an easier time attracting venture capitalists, investors, and bank financing when they've formed as a corporation. In fact, with C corps, it can be easier to get additional capital than with other types of business since you can issue and sell stock, or a variety of other financial instruments, as evidence of interest in the corporation.

Also, certain investments in S corporations or LLCs are banned because of restrictions in their own governing documents and the tax laws, opening up more opportunities for C corps looking to raise capital.



Perpetual Existence

In a sense, a corporation is immortal and perpetual since it doesn't end with the death of a shareholder owner, as do some of the other business types. A C corp business continues on indefinitely, even if the owner leaves the company or passes away.

Public Credibility

The general public normally thinks of corporations as being more substantial than sole proprietorships and partnerships, meaning forming a C corp can help you gain respect and credibility — not just among the public, but among suppliers and lenders as well.

Disadvantages to Forming a C Corporation

Every type of business entity has its disadvantages, as well as its benefits. Here's a list of the main cons of forming a C corporation:


  • C corps have more legal formalities than other types of entities. For instance, they must have a board of directors and officers in addition to the shareholders. You must also hold and keep minutes that document the meetings of the stockholders and board of directors.

  • The sale of stock is sometimes subject to state and federal securities laws.

  • Official documents (typically called a Certificate of Incorporation or Articles of Incorporation) must be filed with the appropriate state government office.

  • Shareholders may face double taxation as they are required to pay personal income taxes on dividends paid to them by the corporation. However, there are ways to reduce or eliminate double taxation. Talk to your tax advisor for advice.

  • State filing fees must be paid. These fees vary by state and range from $50 to $725.

  • There can be some limitations as to the kind of business a corporation is allowed to conduct.

As you can see, there are clear pros and cons to incorporating your business as a C corporation. Next, you'll want to consult your accountant and/or attorney to discuss whether this entity type is truly a good fit for your business and future goals.

How to Form a C Corp?

If you decide that incorporating as a C corporation is the right step for your business, then it's time to decide where you're going to incorporate. Most experts advise establishing a corporation in your home state; however, there may be times when there are tax advantages of incorporating in a different state.

Once a state is chosen, you'll have to make sure you obey the state's corporate laws and register your business name (typically with the secretary of state). You'll also need to file official documents and pay the state filing fee. Finally, you must draft corporate bylaws and hold a meeting with your board of directors.

Should You Form a C Corp?

At MaxFilings, we can help you select the incorporation type that best suits your business needs. Continue browsing our blog and website to learn more about the difference between C corps and S corps as well as see our business entity comparison chart.

And finally, when you're ready to get started, select your preferred entity type below to incorporate today.


More Information to help you decide...