How to Create a C Corp

(November 2024)

In This Article

Introduction

Creating a C Corp takes time and money; you must follow regulated paperwork for federal and state governments. Despite the tasks involved, creating a C Corp has many benefits, like you, the owner, not being personally responsible for the business’s debts, and you can’t get sued for business activities. However, there are some setbacks, such as it being more expensive than other business structures.

What exactly is a C Corp before we mention the key steps in creating a C Corp? A C corporation, or C Corp, is a legal business structure that offers limited liability protection and allows unlimited shareholders. It is subject to corporate income taxation, whereas shareholders pay personal tax. Profits distributed to shareholders are taxed at shareholders’ rates, resulting in “double taxation.”

Like stated above, there is regulated paperwork you must follow when creating your C Corp. You must follow all the rules of incorporation. If you don’t follow the rules, you could lose your corporate status. Read this article through to the end to understand the structured process of creating one. Here’s a rundown of the steps involved in forming a C Corp:

1. Choose a unique business name.

To create a C corporation, you must choose a unique business name that reflects your brand identity, is easy to find online using relevant keywords, and is memorable. Also, avoid long or difficult names, as it’ll make it difficult to remember.

In choosing your business name, ensure to check availability with the secretary of state, who will inform you if the name is available. This is essential for legal protection. State agencies have specific rules for corporate names, and you must comply with them. Your business name should include entity identifiers and abbreviations, excluding words related to government agencies.

Note that a C Corp is formed by selecting a unique business name and incorporating specific designations, such as “corporation,” “incorporated,” or “limited,” to signal its formal status.

2. Appoint directors and officers.

Appointing directors and officers is crucial for creating your C Corp. Directors oversee management and make major decisions on behalf of shareholders, while officers, like the president, secretary, and treasurer, manage the corporation’s day-to-day operations. They are both important keys to a corporation’s direction and decision-making.

Make sure you check state laws when electing directors and officers for your C Corp. To create a board of directors, bylaws should be created and followed by shareholders to help control the company’s operations. Also, board meetings are essential for discussing the corporation’s affairs and a fair compensation structure. Through this, succession plans can be discussed to ensure smooth operations.

Your board members should be committed to the corporation’s growth, have experience in advancing the corporation, have leadership and management experience, have no conflicts of interest, have sufficient time to attend board meetings, and be able to raise money for growth. Please keep in mind that you can be both director and officer of your C Corp.

3. Prepare files of incorporation.

To create a new corporation, you must file the articles of incorporation with your state business filing agency, usually online. The Articles of Incorporation are a legal document that outlines the fundamental details of a C Corporation, including its name, purpose, registered office, capital structure, directors and officers, and duration.

To prepare and file your articles of incorporation, you should gather the necessary information about your corporation, draft it using a template or hire an attorney, and submit it to the state’s business filing office with the required fee. The article of corporation serves as a blueprint for the corporation’s operations and structure; it also yields a certificate of formation.

4. Obtain a certificate of incorporation.

After completing and submitting your articles of incorporation, the state’s business filing office issues you a certificate of incorporation. This helps to confirm your corporation’s formation and legal recognition. The certificate may be issued immediately or take a few weeks to process, and it should be kept securely.

5. Comply with regulatory requirements.

To maintain a corporation’s legal status, you must comply with regulatory requirements. These requirements include tax filings, annual reports, and obtaining licenses and permits from local, state, or federal agencies. These requirements ensure the corporation’s officers, directors, and activities are properly documented and paid for.

Most businesses require a business license or permit before operating, depending on their industry and location. If your business falls into this category, you must follow through and obtain all necessary licenses in accordance with the state regulations where your C Corp is located.

To operate, a C corporation must obtain proper licensing in its city, county, or state. You must know that there are four licenses required for creating a C Corp: federal, local, sales tax (if applicable), and state.

Federal licenses are required if your business falls into certain industries like drug manufacturing, investment advice, and selling alcohol, firearms, or tobacco.

Local licenses are required in the city or county where your C Corp will operate, with specific regulations varying by state.

Sales tax licenses are required in many states for your business to collect sales tax while operating the C Corp.

Lastly, state licensing is more common if your C Corp operates in the labour industries, such as barbers, business contractors, and mechanics, which have specific licenses due to their work duties.

It’s vital to note that these regulations aim to ensure transparency, accountability, and fair business practices. Your non-compliance can result in fines, legal action, or even the dissolution of the corporation. To ensure compliance, you must seek professional advice from a corporate lawyer or accountant. They can help you understand the specific regulations applicable to your business and provide guidance on how to meet them.

Recap

A C Corp is a legal business structure with limited liability protection and unlimited shareholders. Creating one requires regulated paperwork and time. The key steps in creating a C Corp include choosing a unique business name, appointing directors and officers, preparing incorporation files, obtaining a certificate of incorporation, and complying with regulatory requirements.

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