The short answer: To form a C corporation, you choose a state, reserve a name, appoint a registered agent and file articles (in Delaware, a certificate) of incorporation. Then you adopt bylaws, appoint directors and officers, issue founder stock and file any 83(b) elections within 30 days, get an EIN, open a business bank account and register in each state where you operate. After that, the corporation files Form 1120 each year and keeps up its state reports and fees.
A clear walkthrough of the C corp: what it is, why founders choose it, and the full incorporation process in the order you will actually meet it.
Key takeaways
- Separate taxpayer: a C corp pays 21% federal tax on its profit, and shareholders pay tax again on dividends.
- Built for investment: any number and type of shareholders, multiple stock classes and stock options.
- Get the EIN early: banks and state tax accounts need it.
- 30 days for 83(b): founders with vesting stock should file within 30 days of the grant.
- Watch authorized shares: in Delaware they drive the franchise tax bill.
- Yearly filings: Form 1120 by April 15, plus state reports and fees, even with no revenue.
What Is a C Corporation?
A C corporation is a business entity formed under state law that exists as a legal person separate from the people who own it. Once it is incorporated, the business, not its shareholders, earns the revenue, signs the contracts, holds the assets and carries the debts.
That separation is the whole point. The corporation pays tax on its own profit at the 21% federal corporate rate, and shareholders are taxed separately on the dividends they receive. Because the entity stands on its own, owners’ personal assets are generally protected from the business’s obligations. The name comes from Subchapter C of the Internal Revenue Code, the part of the tax code that governs how these corporations are taxed.
The Defining Features of a C Corp
Every business structure has trade-offs, and a C corp is defined by a specific set of characteristics.
Separate Legal Entity
The corporation operates independently of its owners and continues whoever holds its shares.
Limited Liability
A shareholder’s exposure is generally limited to what they invested. The exceptions are debts a shareholder personally guarantees, the shareholder’s own wrongdoing, and cases where a court sets aside the corporate shield because company and personal money were mixed or formalities ignored.
Double Taxation
The corporation pays tax on its profit, and shareholders pay tax again on dividends they receive, so the same income is taxed at two levels.
| Example: profit paid out as a dividend | Amount |
|---|---|
| Corporate profit | $100,000 |
| Federal corporate tax at 21% | $21,000 |
| Paid out as a dividend | $79,000 |
| Shareholder tax on a qualified dividend at 15% | $11,850 |
| Total federal tax | $32,850 (about 33%) |
Higher-income shareholders can also owe the 3.8% net investment income tax on dividends, and most states add their own corporate and personal tax.
Unlimited Shareholders
A C corp can have any number of shareholders, and its shares can be held by individuals, other companies, funds, foreign investors or the public.
Perpetual Existence
The company carries on as owners come and go, are bought out or die.
Defined Management Layers
Shareholders elect a board of directors, and the board appoints officers to run day-to-day operations.
Why Founders Choose a C Corp
Choosing an entity type is one of the most important early decisions a founder makes, because it shapes how the company grows, how it is taxed and how investors and employees relate to it. The C corp is most common among businesses that plan to scale or raise outside capital.
Room to Raise Capital
A C corp can issue multiple classes of stock, including the preferred stock that venture capital and institutional investors expect, and most funds cannot invest in pass-through entities.
No Limit on Ownership
Equity to Attract Talent
Higher-income shareholders can also owe the 3.8% net investment income tax on dividends, and most states add their own corporate and personal tax.
Qualified Small Business Stock
Shareholders in a qualifying C corp may exclude gain on selling their stock under Section 1202. For stock issued after July 4, 2025, the exclusion is 50% after three years, 75% after four and 100% after five, up to $15 million per issuer, for companies with no more than $75 million of gross assets when the stock is issued. Many service businesses do not qualify, so check before relying on it.
Reinvestment Flexibility
A C corp can keep its profit and reinvest it at the 21% corporate rate instead of distributing it, which can lower the overall tax bill while the company is growing.
C Corp vs. S Corp vs. LLC
| C corp | S corp | LLC | |
|---|---|---|---|
| Federal tax | 21% corporate tax, then tax on dividends | Pass-through to owners' returns | Pass-through to owners' returns |
| Owners | Any number and type, including foreign owners and funds | Up to 100 US citizens or residents; one class of stock | Any number and type |
| Stock and equity | Multiple classes; ISOs, NSOs and RSUs | One class; options possible but limited | Units and profits interests; no ISOs |
| Venture capital | The standard structure | Rarely | Usually requires conversion |
| Best for | Startups raising capital or reinvesting profit | Profitable owner-run businesses | Small businesses wanting flexibility |
For the other two structures in detail, see our guides to the S corporation and the LLC.
Not sure a C corp is the right structure?
Book a free 30-minute call with a Countsure CPA to compare the tax cost of a C corp, an S corp and an LLC on your own plans.
How to Form a C Corp, Step by Step
Setting up a C corp is an orderly process, but it does not forgive shortcuts: skipping a step usually means fixing it later at a higher cost. The steps below follow the order most founders move through.
Step 1: Pick a State of Incorporation
Many companies incorporate where they operate; others choose a state known for its corporate law. Delaware is the usual choice for startups that plan to raise venture capital. Nevada and Wyoming have no corporate income tax, but that saves little for a business run from another state: it will still have to register there as a foreign corporation and pay that state’s tax, and it pays registered agent and report fees in two states.
Step 2: Choose a Business Name
Choose a name that no other entity registered in your state of incorporation is using. Most states require a word that signals corporate status, such as Corporation, Incorporated, Company or Limited, or an abbreviation. Check that the matching domain and trademark are free before you file.
Step 3: Appoint a Registered Agent
Every corporation must name a registered agent, a person or company that receives legal papers and state correspondence for it. The agent needs a physical address in the state of incorporation and must be available during business hours. Founders outside the state, or outside the US, use a commercial agent service.
Step 4: File the Articles of Incorporation
This document, called the certificate of incorporation in Delaware, brings the corporation into existence. It records the name, address, registered agent, incorporator, and the number and par value of shares the company is authorized to issue. You file it with the secretary of state and pay a filing fee.
Choose the authorized shares carefully. Startups often authorize 10 million shares at a tiny par value, which is fine, but in Delaware the default franchise tax calculation is based on authorized shares (see the worked example under Staying Compliant). Our US company registration service handles the filing.
Step 5: Adopt Bylaws and Appoint the Initial Directors
Bylaws are the corporation’s internal rulebook: how meetings work, the rights and duties of shareholders, directors and officers, and how decisions are made. If the articles do not name the first directors, the incorporator appoints them in writing. They serve until the shareholders elect a board.
Step 6: Hold the Organizational Meeting
The directors hold a first meeting, or sign a written consent, to adopt the bylaws, appoint officers, approve the issue of founder stock, authorize a bank account, and set the fiscal year. Keep the minutes or consent in the corporate records.
Step 7: Issue Founder Stock and File Any 83(b) Elections
Step 8: Get an Employer Identification Number (EIN)
An EIN is the federal tax ID the IRS issues to a business. A founder with a US Social Security number can get one online the same day. Founders without one apply on Form SS-4 by fax or mail, which takes from a few days to several weeks. You need it for the bank account, state tax accounts and payroll. Do not hold back an 83(b) election while you wait for it; the 30 days run from the date of the grant.
Step 9: Open a Business Bank Account
Step 10: Register in the States Where You Operate
If the company has an office, employees or significant sales in a state other than the one it was formed in, it usually must register there as a foreign corporation. Operating without registering can bring penalties and stop the company from enforcing contracts in that state’s courts.
Step 11: Register for State Taxes, Licenses and Permits
Depending on what the business does and where, it may need a sales tax permit, a state withholding and unemployment account once it has employees (see our payroll service), and local business licenses or industry permits.
Step 12: Decide on an S Corp Election
If every shareholder is an eligible US person and the company does not plan to raise venture capital, consider whether an S corp election would cost less. It must be filed on Form 2553 within 2 months and 15 days of the start of the tax year it should apply to.
Staying Compliant After Formation
A C corp’s protections depend on the company acting like a corporation year after year. Most states expect an annual report and a fee, and the corporation is expected to keep its directors and officers current, hold the required meetings and document its decisions.
Letting these slip has two costs. The state can revoke the corporation’s good standing, and in a dispute a court may treat sloppy records as a reason to set aside the liability shield.
Yearly Filings for a C Corp
| Filing | Due date | Who files |
|---|---|---|
| Form 1120 (federal return) | April 15 for a calendar year; October 15 with Form 7004 | Every C corp, even with no income |
| Form 5472 | Filed with Form 1120 | If a foreign person owns 25% or more; $25,000 penalty per form for missing it |
| State annual report and franchise tax | Varies by state; Delaware is March 1 | Every state where the corporation is formed or registered |
| State income or franchise tax return | Usually follows the federal due date | Each state where the corporation has nexus |
| Payroll filings | Quarterly Form 941; W-2s by January 31 | Once anyone, including a founder, is paid a salary |
| Beneficial ownership (BOI) report | Not required | FinCEN exempted US-formed companies in March 2025 |
The Delaware Franchise Tax
| Item | Rule | Example |
|---|---|---|
| Authorized shares method | $175 minimum for 5,000 shares or fewer; $250 for 5,001 to 10,000; plus $85 for each extra 10,000 shares | 10,000,000 authorized shares gives a bill of $85,165 |
| Assumed par value capital method | $400 minimum; based on gross assets and issued shares | The same startup with modest assets often pays the $400 minimum |
| Annual report fee | $50 | Filed with the tax |
| Due date and penalty | March 1; $200 late penalty plus 1.5% interest a month | Maximum tax $200,000 for most companies |
Worked example: a startup with 10,000,000 authorized shares and $250,000 of gross assets gets a Delaware notice for $85,165 under the authorized shares method. Recalculating under the assumed par value capital method, with its issued shares and gross assets entered when filing, usually brings a company like this down to the $400 minimum. Add the $50 report fee and the total is $450, if paid by March 1.
Meetings, Minutes and Records
Hold the required director and shareholder meetings or sign written consents, keep the minutes, and keep the cap table, officer list and registered agent details current.
Foreign-Owned C Corps
Need your C corp's yearly filings handled?
Countsure prepares Form 1120 and Form 5472, calculates the Delaware franchise tax the cheaper way, and keeps your books and state filings current.
Frequently Asked Questions
1. What is the difference between a C corp and an S corp?
Both are corporations under state law; the difference is federal tax. A C corp pays 21% corporate tax on its profit, and shareholders pay tax again on dividends. An S corp passes its income to shareholders’ personal returns and avoids the corporate tax, but it is limited to 100 eligible US shareholders and one class of stock. Every corporation starts as a C corp and can elect S status on Form 2553 if it qualifies.
2. Why do so many startups incorporate in Delaware?
Delaware has a well-developed body of corporate law and a specialist business court, the Court of Chancery, which makes outcomes predictable. Venture investors know Delaware corporations and often require one. It is not automatically right for a small business that operates in one state, because that business will usually also have to register and pay tax in its home state.
3. What is double taxation, and can it be avoided?
Double taxation means the corporation pays 21% tax on its profit and shareholders pay tax again on dividends from that profit. On $100,000 of profit paid out as a qualified dividend taxed at 15%, total federal tax is about $32,850. A C corp can reduce the effect by reinvesting profit, paying reasonable salaries to owners who work in the business, or electing S status if eligible.
4. Can a non-US founder form a C corp?
Yes. A C corp can have foreign shareholders, which is why it is the usual choice for founders based outside the US. The corporation will need an EIN, which takes longer without a US Social Security number, and it must file Form 5472 each year if a foreign person owns 25% or more.
5. Do I need to file an 83(b) election when I get founder stock?
If your founder shares are subject to vesting, you generally should. The election must be filed with the IRS within 30 days of the grant. It lets you pay tax on the shares’ value now, usually close to zero, instead of on their higher value as they vest. The 30-day deadline cannot be extended.
6. How much does it cost to keep a Delaware C corp?
A registered agent fee, a $50 annual report fee and the Delaware franchise tax, due March 1. Under the default authorized shares method, a company with 10 million authorized shares is billed $85,165, but recalculating under the assumed par value capital method often brings small startups down to the $400 minimum.
7. Do I need a lawyer to form a C corp?
You can incorporate without one, and many founders use a formation service for the filing. The decisions around it, such as the state, share structure, vesting, bylaws and tax planning, benefit from professional advice, and getting them right at the start avoids costly fixes later.
8. How long does it take to form a C corp?
No. They are different legal structures. A single-member LLC is taxed like a sole proprietorship by default, but legally it remains an LLC with its own existence.
9. When is a C corp's tax return due?
Form 1120 is due on the 15th day of the fourth month after the tax year ends, which is April 15 for a calendar-year corporation. Filing Form 7004 on time extends it to October 15, but any tax owed is still due in April.
Setting Up Your Corporation? Start with the Right Structure.
Countsure works with founders and finance teams to get the foundations right, from choosing an entity structure to handling the tax and compliance obligations that follow incorporation.
Other Related Services
- What Is an S Corporation?: how an S corp works and who qualifies.
- What Is an LLC?: types, taxes and how a limited liability company works.
- What Is a Section 83(b) Election?: the 30-day filing every founder with vesting stock needs.
Parth Shah, Managing Director
(CPA-US, FCA, RV-S&FA, DISA)
Parth Shah who is head of Accounts and Book keeping has experience of more than 10 years. A Certified Public Accountant – US, fellow Chartered Accountant, Registered Valuer and Diploma in Information System Audit.
