How to Start a Corporation

Decide on C Corporation or S Corporation Tax Status

Every corporation is, by default, taxed as a C corporation: per the IRS, the corporation pays income tax on its profit when earned, and shareholders pay tax again when that profit is distributed as dividends, with no deduction for the corporation on those dividends. An eligible corporation can instead elect S corporation status, which has income pass through to shareholders' personal returns similar to a partnership, avoiding the corporate-level tax. Per the IRS, S corporation eligibility requires no more than 100 shareholders, who must generally be individuals, certain trusts, or estates rather than other corporations or most partnerships, only one class of stock, and being a domestic corporation. See our guide on how to choose a business structure for how this compares to an LLC.

File Articles of Incorporation With the State

A corporation is formed by filing Articles of Incorporation with the state's Secretary of State or equivalent agency, naming the corporation, its registered agent, and the number of shares it's authorized to issue. State filing fees and exact requirements vary by state, so check your specific state's filing agency for its current fee and form before filing.

Appoint Directors and Hold an Organizational Meeting

After the state approves the Articles of Incorporation, the incorporator typically appoints the initial board of directors, who then hold an organizational meeting. At this meeting, the board typically adopts the corporation's bylaws, appoints officers, authorizes opening a bank account, and approves issuing the initial shares of stock. Keep minutes of this meeting as part of the corporation's permanent records, since banks and later transactions commonly ask to see them.

Adopt Bylaws

Bylaws are the corporation's internal rulebook, covering how directors are elected, how meetings are called and conducted, officer roles, and how major decisions get approved. They're adopted by the board, not filed with the state, but they're expected before a corporate bank account can typically be opened and matter if there's ever a dispute among directors or shareholders.

Issue Stock to the Initial Shareholders

The board authorizes issuing shares to the corporation's initial shareholders in exchange for cash, property, or services, consistent with the number of authorized shares stated in the Articles of Incorporation. Keep a stock ledger recording who owns what, since this is the corporation's official record of ownership and matters for any future sale, investment, or dispute.

Get an EIN and Register for Taxes

Apply for a free EIN directly from the IRS once the state approves formation; it's typically issued immediately online. File Form 1120 for federal corporate income tax if taxed as a C corporation (electronically required if the corporation files 10 or more returns a year), or Form 2553, signed by every shareholder, to elect S corporation status instead. If the corporation will sell taxable goods or hire employees, register separately for state sales tax and state employer obligations.

Keep Up With Ongoing Corporate Formalities

Most states require an annual report and a filing fee to keep the corporation in good standing, and corporations are generally expected to hold regular board and shareholder meetings and keep minutes, more formal ongoing requirements than an LLC typically has. Treat these formalities as part of what keeps the corporate structure's liability protection intact, not optional paperwork.

Double Taxation Is the Main Tradeoff for a C Corporation

A C corporation's ability to issue multiple classes of stock and attract outside investors, which is why many venture-backed companies choose this structure, comes with the cost of taxing corporate profit twice: once at the corporate level and again when distributed as dividends. Weigh this against an S corporation election or an LLC if the business won't need multiple stock classes or significant outside investment.

S Corporation Eligibility Is Strict and Easy to Violate Accidentally

Because an S corporation is capped at 100 shareholders, limited to individual, trust, or estate shareholders, and restricted to one class of stock, a corporation can lose its S election by violating any of these rules, even unintentionally, such as by transferring shares to an ineligible shareholder. Monitor eligibility on an ongoing basis, not just at the time of election.

Corporate Formalities Protect the Liability Shield

A corporation that skips its organizational meeting, never adopts bylaws, or doesn't keep minutes and separate finances risks a court finding that it wasn't actually operated as a separate entity, which can expose shareholders' personal assets in a lawsuit. Treat the formalities described here as required steps, not optional ones, especially for a smaller corporation with few shareholders.

A Lawyer Isn't Required, but Complexity Often Calls for One

Many states let you file Articles of Incorporation yourself without an attorney, but a corporation with multiple shareholders, outside investors, or multiple stock classes benefits from legal help drafting bylaws and stock agreements that fit the specific ownership plans.

This Is Not Legal or Tax Advice

Which tax election, state, and formalities fit a specific corporation depend on its ownership, funding plans, and industry. Talk to a tax professional and an attorney before finalizing incorporation, particularly if the corporation will have multiple shareholders or outside investors.