What a C-Corp is and when you need one
A C-Corporation is a US company owned by shareholders and run by a board of directors. It pays federal corporate income tax on its profits, currently at a flat 21% rate, and shareholders pay tax again on dividends they receive. That double layer is the main cost of the structure.
In return you get the structure US investors expect. Venture funds, accelerators and most angel syndicates invest through preferred stock in a C-Corp, and employee stock option plans are built for corporations. If you plan to raise institutional money, a C-Corp is usually the right starting point.
Who this is for
- Startup founders outside the US planning to raise from US investors or accelerators.
- Teams that want to grant stock options to employees in several countries.
- Founders creating a US parent company above an existing Indian, UK or Nigerian operating company.
- Businesses whose customers or partners require a US corporation for contracts.
If you are a solo consultant or small trading business with no funding plans, an LLC is often simpler and cheaper to run. Our LLC vs C-Corp guide explains the trade-off.
Why Delaware is the default
Most venture-backed US startups incorporate in Delaware. Its corporate statute is detailed, its Court of Chancery specialises in business disputes, and investors' lawyers know it well. That familiarity speeds up financing documents.
Delaware is not free to maintain. Every Delaware corporation files an annual report and pays franchise tax by March 1. The default calculation is based on authorized shares, which can produce a large bill for startups that authorize millions of shares. The alternative assumed par value capital method is usually much lower for early-stage companies, so file using it where it helps. Other states can be cheaper when outside funding is not the plan.
What BookMyLLC handles
- Name availability check and filing of the certificate of incorporation.
- Registered agent in the state of incorporation for the first year.
- Bylaws and the initial board consent appointing officers and adopting the bylaws.
- Stock authorization and initial share issuance to founders, with a stock ledger.
- EIN application with the IRS by fax, which works without an SSN.
- A post-formation checklist: 83(b) elections, bank account, annual report and IRS filings.
Step-by-step process
- Choose the state and name. We confirm the name is available and agree the number of authorized shares and par value.
- File the certificate of incorporation. We submit it with the state and receive the stamped certificate.
- Adopt bylaws and appoint the board. An initial consent names directors, appoints officers and adopts the bylaws.
- Issue founder shares. Shares are issued under a stock purchase agreement, often with vesting.
- File 83(b) elections if shares vest. Each founder receiving vesting shares should consider this election, which must reach the IRS within 30 days of issuance.
- Get the EIN. We file Form SS-4. Without an SSN, IRS processing by fax generally takes about 4 business days once accepted, and longer by mail.
- Open the bank account. With the certificate, bylaws and EIN you can apply to US banks and fintech providers.
Information you need
- Proposed company name and one or two alternatives.
- Names, addresses and passport copies of directors, officers and founding shareholders.
- The share split between founders and any vesting terms.
- A short description of the business for the EIN application.
- A mailing address where IRS letters can reach you.
Timeline
State processing for the certificate of incorporation typically takes from a few business days to a couple of weeks, depending on the state and any expedite option. The EIN follows once the certificate is filed. Plan for several weeks from start to a working bank account.
US tax filings a C-Corp owes
A C-Corp files Form 1120 every year, even with no revenue, by the 15th day of the fourth month after its tax year ends: April 15 for a calendar year. If a foreign person owns 25% or more, the corporation also files Form 5472 for reportable transactions with that owner, and the penalty for missing it starts at USD 25,000 per form. Dividends paid to non-resident shareholders are generally subject to US withholding tax, which a tax treaty may reduce. This is general information, not tax advice; confirm your position with a CPA.
Running the corporation after formation
A corporation is expected to behave like one. That means the board approves major decisions in writing or at a meeting, officers sign contracts in their official capacity, and the company keeps minutes, resolutions and its stock ledger up to date. These records are the first thing an investor's lawyer asks for during due diligence.
Keep company money in the company's own bank account, pay founders through payroll or documented distributions, and record any loans between founders and the company with a written note. If you later adopt a stock option plan, the board approves it and each grant, and the plan should be reviewed by a lawyer before the first grant.
Common mistakes to avoid
- Skipping the 83(b) election. Missing the 30-day window can create a large tax bill as shares vest. There is no late filing.
- Paying franchise tax on the default method. Recalculate with the assumed par value capital method before paying a Delaware bill.
- Treating company money as your own. Transfers to founders need to be salary, dividends, loans or expense reimbursements, documented as such.
- Forgetting foreign qualification. If you hire staff or open an office in another state, the corporation usually has to register there too.
For a deeper walkthrough, read how to form a C-Corp in the US.
C-Corp at a glance
| Question | Short answer |
|---|---|
| Ownership | Shares of stock; founders and investors hold stock in proportion to what they paid or earned. |
| Liability | Shareholders are generally not personally liable for corporate debts. |
| Federal tax | The corporation pays tax on its profits at the corporate rate; dividends are taxed again in the hands of shareholders. |
| Best state for investors | Delaware, because investors and their lawyers know its corporate law. |
| Governance | Bylaws, a board of directors, officers, stockholder consents and a stock ledger. |
| Best suited to | Startups planning to raise venture capital or issue stock options. |
Documents a new C-Corp should have in place
| Document | What it does |
|---|---|
| Certificate of incorporation | Filed with the state; creates the corporation and sets its authorised shares. |
| Bylaws | Internal rules for meetings, officers and decisions. |
| Initial board consent | Appoints officers and approves the first actions, such as opening a bank account. |
| Stock purchase agreements | Record each founder's shares and any vesting. |
| Stock ledger | The running record of who owns what. |
| EIN confirmation | Needed by banks and for tax filings. |
Skipping the paperwork is the most common reason a C-Corp struggles in investor due diligence later. If you plan to raise, see how it fits with your EIN and your internal agreements.
Why Delaware, and when another state is better
Delaware is the default for venture-backed companies because its corporate law and courts are well understood by investors and their lawyers, and a Delaware certificate of incorporation raises no questions in a financing. For a company that will never raise outside capital, a home-state or lower-cost state can be sufficient. The trade-off is not only cost: forming in one state and operating in another often means registering and paying fees in both.
If you are unsure, our business consultation compares the two for your situation before you file, which is cheaper than converting later through a domestication.
First steps after incorporation
- Hold the first board meeting or sign the initial board consent: appoint officers, adopt bylaws and authorise opening a bank account.
- Issue stock to the founders and keep the ledger up to date.
- Apply for the EIN and open a US bank account.
- Calendar the Delaware annual report and franchise tax, and the federal corporate return.
Founders outside the US should also plan for withholding on any dividends paid to them, and for reporting duties in their home country as owners of a foreign company.
