Corporation Formation Guide
What is a corporation?
A corporation is a legal entity that exists separately from its owners, known as shareholders. It is formed by filing Articles of Incorporation with a state's business filing office and is managed through a formal structure of shareholders, a board of directors, and officers. Because the corporation itself owns the business's assets and liabilities, shareholders are generally shielded from personal responsibility for corporate debts, subject to the same exceptions that apply to LLCs, such as fraud or failure to maintain the corporate formalities.
What does it cost to form a corporation?
States set their own filing fee for Articles of Incorporation, and that fee is what a formation service passes through unchanged; it is not something a private company can discount. Filing fees vary widely between states, and many states also charge an annual report or franchise fee to keep the corporation active. Check the specific state page for the current corporate filing fee and any recurring annual charges. Additional costs to plan for include bylaws, an initial board resolution or organizational meeting minutes, stock certificates, and an EIN.
Steps to form a corporation
Incorporating typically involves choosing an available corporate name, appointing a registered agent, filing Articles of Incorporation with the state, adopting bylaws that govern how the corporation will be run, holding an organizational meeting to appoint directors and issue stock, and obtaining an EIN from the IRS. Corporations must also maintain ongoing formalities such as annual shareholder and board meetings and written minutes, which distinguishes them from the lighter-weight LLC structure.
When a corporation makes sense
A corporation is generally the right fit for businesses that plan to raise money from outside investors, issue employee stock options, or eventually pursue a public offering, because investors and stock markets are built around the corporate share structure. It also suits businesses that want a clear, well-tested governance structure with a board of directors overseeing officers. Founders who want maximum flexibility and minimal paperwork often choose an LLC instead.
Frequently asked questions
What is the difference between a C corporation and an S corporation? Both start as the same state-law corporation; the difference is a federal tax election. A C corporation pays corporate income tax and shareholders are taxed again on dividends, while an S corporation election allows profits to pass through to shareholders' personal returns, subject to IRS eligibility rules on ownership and stock class. Do corporations require a board of directors? Yes, state law generally requires at least one director, even for a single-owner corporation. Can a corporation later convert to an LLC or vice versa? Many states allow a statutory conversion, but the process and tax consequences vary and are worth discussing with a tax professional before deciding.