A C-Corporation (C-Corp) is a legal business entity that is taxed separately from its owners under Subchapter C of the Internal Revenue Code. It is the default tax classification for corporations and the preferred structure for businesses seeking venture capital investment, planning an IPO, or wanting to take advantage of Qualified Small Business Stock (QSBS) exclusions.
47 steps across 12 sections
1. Choose a State of Incorporation
- Most small businesses should incorporate in their home state
- Delaware is the standard for VC-backed startups and companies planning to go public
- The state of incorporation determines which corporate laws govern the entity
2. Choose a Corporate Name
- Must include "Corporation," "Incorporated," "Company," or abbreviation (Corp., Inc., Co.)
- Must be distinguishable from existing entities in the state
- Check availability with the Secretary of State and consider trademark search
3. Appoint a Registered Agent
- Required in every state where the corporation is registered
- Must have a physical address in the state
- Can be an individual or professional service ($50-$300/year)
4. File Articles of Incorporation
- Registered agent name and address
- Number and type of authorized shares
- Par value of shares (or statement of no par value)
- Incorporator name and address
- Corporate purpose (can be general: "any lawful business")
- Principal office address
5. Draft Corporate Bylaws
- Board of directors: size, election, terms, removal, vacancies
- Officers: titles, duties, appointment, removal
- Shareholder meetings: annual meeting, special meetings, notice requirements, quorum, voting
- Stock: classes, transfer restrictions, certificates
- Indemnification of directors and officers
- Amendment procedures
6. Hold Organizational Meeting
- Elect officers (President/CEO, Secretary, Treasurer/CFO at minimum)
- Authorize stock issuance
- Adopt a fiscal year
- Approve opening bank accounts
- Adopt any stock option or incentive plans
- Appoint committees if needed
7. Issue Stock
- Issue stock certificates or record book entries to founders/initial shareholders
- File Section 83(b) elections within 30 days if stock is subject to vesting (critical for founders receiving restricted stock)
- Maintain a stock ledger tracking all issued shares, transfers, and ownership
- Consider authorizing more shares than initially issued to allow for future issuance
8. Obtain an EIN
- Apply at IRS.gov (free, instant)
- Required for tax filings, bank accounts, hiring employees
9. Ongoing Compliance
- File annual reports with the state
- Hold annual shareholder and board meetings (document in minutes)
- File Form 1120 (corporate tax return) annually
- Issue 1099s to contractors and W-2s to employees
- Maintain corporate formalities to preserve liability protection
10. Level 1: Corporate Tax
- Corporation pays 21% federal income tax on net profits
- State corporate income tax may also apply (varies by state, typically 0-12%)
11. Level 2: Shareholder Tax
- When profits are distributed as dividends, shareholders pay tax on those dividends
- Qualified dividends are taxed at 0%, 15%, or 20% depending on the shareholder's income bracket
- An additional 3.8% Net Investment Income Tax (NIIT) may apply for high earners
12. Effective Combined Tax Rate
- Corporate level: 21%
- Remaining $79 of every $100 profit goes to shareholders
- Shareholder level (at 20% + 3.8% NIIT): $79 x 23.8% = $18.80
- Total tax: $39.80 on $100 of profit (39.8% effective rate)