Forming a corporation is a significant milestone for any business owner, regardless of company size. A corporation provides a formal structure that establishes your business as a legal entity separate from yourself and any cofounders, and it also offers advantages such as liability protection and potential tax benefits.
Here’s more on what a corporation is, how to start a corporation, and the benefits (and drawbacks) of adopting a corporate business structure in 2025.
Table of contents
- What is a corporation?
- Corporation vs. other business structures
- Corporation vs. LLC comparison
- Corporation vs. sole proprietorship and partnership
- Types of corporations
- How to start a corporation
- Incorporation costs and timeframes
- Advantages of a corporate business structure
- Disadvantages of a corporate business structure
- State-specific incorporation considerations
- Post-incorporation compliance requirements
- How to start a corporation FAQ
What is a corporation?
A corporation is a legal entity owned by one or more individuals or institutions. These owners are known as shareholders. The corporation is distinct from its owners and has its own legal rights and obligations.
One of the defining characteristics of a corporation is the provision of limited liability, meaning shareholders’' personal assets are generally protected from the corporation’'s debts and legal liabilities. A corporation typically enjoys an indefinite lifespan, which ends only when it’'s formally dissolved.
Corporation vs. other business structures
When deciding how to structure your business, it’'s essential to understand the differences between corporations and other common business entities. The right choice depends on your specific business goals, growth plans, and tax situation.
Corporation vs. LLC comparison
Limited liability companies (LLCs) and corporations both offer limited liability protection, but they differ significantly in structure, taxation, and flexibility:
- Ownership: Corporations can issue stock and have shareholders, while LLCs have members who own membership interests.
- Management: Corporations require a formal management structure with a board of directors and officers, while LLCs can be managed directly by members or appointed managers.
- Taxation: LLCs have pass-through taxation by default (similar to S corporations), while C corporations face double taxation.
- Paperwork: Corporations generally require more extensive record-keeping, annual meetings, and formal documentation than LLCs.
- Investment potential: Corporations can more easily raise capital through stock issuance, making them preferable for businesses seeking outside investment.
Corporation vs. sole proprietorship and partnership
Sole proprietorships and partnerships are simpler business structures, but they lack the legal separation between business and personal assets that corporations provide:
- Liability: In sole proprietorships and partnerships, owners are personally liable for business debts and legal issues. Corporations shield owners from personal liability.
- Taxation: Sole proprietorships and partnerships have pass-through taxation, with business income reported on personal tax returns.
- Formality: Corporations require formal creation through state filing, while sole proprietorships and partnerships can be formed with minimal paperwork.
- Continuity: Corporations continue to exist regardless of ownership changes, while sole proprietorships and partnerships may dissolve when owners leave or die.
- Credibility: Corporations often command greater credibility with customers, vendors, and financial institutions compared to sole proprietorships or partnerships.

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Types of corporations
There are several types of corporations, but the ones most typically used by business owners in the US are the C corporation (C corp), the S corporation (S corp), and the B corporation (B corp). Here’s how they differ:
C corporation
A C corporation, often known as a C corp, is recognized under subchapter C of the Internal Revenue Code and is the most common type of US corporate entity. Like other corporations, it’s characterized by limited personal liability for shareholders.
C corps have a flexible ownership structure with the ability to issue and sell shares of stock, allowing for a virtually unlimited number of shareholders. The governance of a C corp involves shareholders electing a board of directors, which in turn appoints corporate officers to manage the company’s day-to-day affairs.
Although C corps have relatively easier access to capital, perpetual existence, and limited liability, they’re subject to what’s known as double taxation; the government imposes separate taxes on both the corporation’s profits and on any income shareholders receive in the form of dividends.
For example, if a C corporation earns $100,000 in profit and pays the 21% corporate tax rate ($21,000), it has $79,000 remaining. When distributing $50,000 of this as dividends to shareholders, those shareholders would pay personal income tax on those dividends, effectively taxing the same money twice.
Tech startups seeking venture capital typically form C corporations because investors prefer this structure for its stock classes and familiar governance.
S corporation
An S corporation, or S corp, is a tax designation granted by the US Internal Revenue Service (IRS), providing certain tax advantages to businesses while maintaining the liability protection inherent in a corporation.
Unlike a C corp, an S corp can avoid double taxation by electing to pass corporate income, losses, deductions, and credits to shareholders for federal tax purposes. This means that S corps are not subject to federal income tax at the corporate level; instead, shareholders report the corporation’s income or losses on their individual tax returns.
S corps are also limited to a maximum of 100 shareholders, all of whom must be US citizens or US residents. Other corporations, partnerships, institutions, or other non-individuals are barred from holding ownership positions.
The core contrast between an S corp and the more popular C corp lies in the tax treatment and ownership structure. While both provide limited liability for shareholders, S corporations offer a more tax-efficient structure for smaller businesses, avoiding the double taxation associated with C corps. However, because S corps have restrictions on the number and type of shareholders they can have, their ability to raise capital by issuing stock is limited, constraining their ability to enjoy the advantages of more diverse ownership.
Family-owned businesses and professional service firms often choose S corporation status to take advantage of tax benefits while maintaining control within a smaller group of shareholders.
B corporation
A benefit corporation, or B corp, is a distinct business entity that combines profit-making with a commitment to social and environmental responsibility. Unlike a traditional C corp, the primary focus of which is to maximize shareholder value, a B corp is legally mandated to consider the impact its business decisions have on a broad range of stakeholders, including employees, surrounding communities, and the environment. The B corp structure is designed to ensure the company strives for positive social and environmental outcomes along with financial success.
To become a certified B corp, your company must meet rigorous standards of social and environmental compliance, transparency, and accountability set by B Lab, a nonprofit organization that reviews potential B corps and awards official certifications to businesses that meet its standards.
Note that while “B corporation” is often used as shorthand for “benefit corporation,” technically a ’Certified B Corporation refers specifically to companies certified by the nonprofit B Lab, while “benefit corporation” refers to the legal structure available in many states.
As of 2025, B Lab requires companies to achieve a minimum verified score of 80 points on the B Impact Assessment, meet legal requirements for their corporate structure, and measure and report their greenhouse gas (GHG) emissions annually.
Companies focused on sustainability and social impact, like Patagonia and Ben & Jerry’s, typically choose B corporation status to align their business structure with their mission.
How to start a corporation
- Choose a corporate name
- Draft and file articles of incorporation
- Appoint an initial board of corporation directors
- Write corporate bylaws
- Hold an initial directors’ meeting
- Issue stock certificates
- Obtain an employer identification number (EIN)
- Open a business bank account
- Comply with business permitting and licensing rules
- Appoint a registered agent
Starting any type of corporation involves several crucial steps to ensure legal compliance:
1. Choose a corporate name
Select a unique and suitable name for your corporation. Ensure it complies with your state of incorporation’s business naming regulations, is available for registration, and doesn’t violate any active trademarks.
2. Draft and file articles of incorporation
Prepare articles of incorporation, a document that outlines the basic details of your corporation, including its name, purpose, and structure. File this document with the appropriate government agency in your state of incorporation—usually the Secretary of State’s office.
3. Appoint an initial board of corporation directors
Identify and appoint directors to your corporation’s board. These individuals will oversee corporate governance, advocate on behalf of shareholders, and appoint managers to carry out day-to-day operations.
4. Write corporate bylaws
Develop corporate bylaws that outline the internal rules and regulations governing your corporation. This document typically covers topics like the schedule and protocols for shareholder meetings, the responsibilities of directors, and the distribution of profits.
If your board of corporation directors is assembled at this point, they can (and should) participate in drafting and approving these foundational rules.
5. Hold an initial directors’ meeting
Conduct the first board of directors meeting to discuss and approve important matters, including adopting bylaws, appointment of officers, and issuance of stock.
6. Issue stock certificates
Allocate and issue stock certificates to the initial shareholders. These represent their ownership interests in your corporation.
7. Obtain an employer identification number (EIN)
Apply for an employer identification number (EIN) with the IRS. This unique identifier—like a Social Security number for businesses—is necessary to pay taxes and is used when opening a business bank account.
8. Open a business bank account
Establish business bank accounts for your corporation. This is critical for maintaining financial transparency and avoiding intermingling personal finances with your corporation’s assets.
9. Comply with business permitting and licensing rules
Obtain the necessary business permits and business licenses to operate legally in your jurisdiction—at the state, county, and municipal levels. Compliance with local regulations is required to avoid legal complications and interruptions to your corporation’s business.
10. Appoint a registered agent
Designate a registered agent—a person or organization that typically has a physical address in the state of incorporation. In all 50 states, registered agents must be open and available to receive corporate and legal documents and official and government correspondence during regular business hours.
Incorporation costs and timeframes
When planning to start a corporation, it’s important to understand the costs involved and how long the process typically takes.
State filing fees comparison
Filing fees vary significantly by state. Here are some examples of the most common incorporation states:
- Delaware: $109 for domestic corporations and $245 for foreign corporations
- Nevada: Filing fees start at $75 (and go up from there, depending on the value of authorized shares), plus additional business license fees
- Wyoming: $100 basic filing fee
- New York: $125 filing fee
- California: $100 filing fee
Most states also offer expedited processing for additional fees.
Service provider fees
Many entrepreneurs use service providers to simplify the incorporation process. A standard incorporation package can range from around $500 to $1,000. You’ll also need to consider attorney fees, which are highly variable. Although these services can add up, a service provider can save time and reduce the risk of costly errors in your filings.
Typical incorporation timelines
The time required to form a corporation varies quite a bit by state and method—in Alabama it takes up to eight weeks, but you can reduce that time to as little as four weeks by paying an additional fee. In Delaware, you can file for a corporation in as little as one hour, subject to a $1,000 additional fee.
Generally speaking, you can expect the entire process to take around three to six weeks from start to finish in many states, including all post-filing setup tasks.
Advantages of a corporate business structure
Limited liability
Arguably, a corporation’s primary advantage is the limited liability protection it provides shareholders. In the event a business defaults on debt or receives a legal judgment for damages, shareholders’ personal assets are generally protected. This limits the financial risk to the amount a shareholder has invested in the corporation should the business fail and enter liquidation.
Ability to raise capital
Corporations can raise capital by issuing shares to investors. This makes it easier to attract investors and expand the business compared to other business structures.
Separate legal entity
A corporation is a legal entity separate from its owners, allowing the corporation to enter into contracts, own assets, and incur debts in its own name, providing autonomy and legal protection.
Credibility and prestige
Incorporating your business often enhances its credibility with customers, suppliers, and potential partners. The Inc" or Corp. designation signals permanence and professionalism, which can be particularly valuable for businesses seeking to:
- Secure contracts with larger organizations
- Establish vendor relationships with preferential terms
- Attract higher-quality employees
- Build customer trust in regulated industries
Disadvantages of a corporate business structure
Taxes
A significant drawback of a corporate structure is the potential for double taxation, where business profits are taxed at the corporate level, and once more when dividends are distributed to shareholders and reported on personal income tax returns.
If you choose to register your business as an S corp, however, you can avoid double taxation by passing all earnings, losses, deductions, and credits through to shareholders for taxation at the personal level.
Depending on where you incorporate your business, your corporation may also be subject to certain state or local corporate income taxes and fees, such as those associated with filing a required annual report. The federal corporate tax rate remains at a flat 21% for C corporations in 2025.
Complexity and formality
The process of starting and maintaining a corporation involves significant paperwork, adherence to regulations, and formalities such as regular board and annual shareholder meetings. This complexity can pose a disadvantage to small businesses or those with otherwise limited resources.
Costs and fees
Forming a corporation (and running one) can result in higher costs than other business structures. Filing fees, legal expenses, and regular compliance requirements contribute to the financial burden, especially for small business owners.
Increased regulatory requirements
Corporations face stricter regulatory oversight than other business structures, including:
- Mandatory annual reports
- Formal record-keeping requirements for all major decisions
- Required board and shareholder meetings with formal minutes
- Complex tax filing requirements
- Potential SEC regulations for larger corporations
These requirements create ongoing administrative overhead that smaller businesses may find burdensome.
State-specific incorporation considerations
Where you incorporate your business can significantly impact your costs, legal protections, and ongoing requirements.
Popular incorporation states
Several states are particularly popular for incorporation due to their business-friendly laws:
- Delaware: Often considered the gold standard for corporations due to its specialized business court (Court of Chancery), business-friendly laws, and privacy protections. Particularly advantageous for companies planning to seek venture capital or go public.
- Nevada: You don’t need to live in Nevada to run a corporation there, although residents don’t have to pay income tax or tax on corporate shares.
- Wyoming: This state also boasts no corporate or personal income taxes.
Each state has different advantages depending on your business type, size, and goals.
Home state vs. foreign state incorporation
You don’t have to incorporate in the state where your business is located, but doing so can often save you from paying additional fees. That said, with states like Delaware, Wyoming, and Nevada offering preferential laws for corporations, filing in one of those states could save you in the end, particularly if you plan to operate in multiple states.
Post-incorporation compliance requirements
Creating your corporation is just the beginning. Maintaining corporate status requires ongoing compliance. Mandatory tasks include:
- Filing annual reports,including updates to the corporation’s address, registered agent(s), and offices.
- Maintaining corporate records, including a record of all bylaws, board and shareholder meeting minutes, financial records, tax returns, and a record of major decisions.
- Holding regular meetings, including an annual shareholder meeting where directors are elected, and regular board of directors meetings. Corporations must also document and store meeting minutes.
How to start a corporation FAQ
How much does it cost to start your own corporation?
The cost to start your own corporation varies significantly depending on many factors, including your state of incorporation, the type of corporation you form, the number of shareholders, and whether you’ve used the services of a business attorney or tax professional. These can range from a few hundred to several thousand dollars.
What do you need to start your own corporation?
To start a corporation, you typically need a unique business name, articles of incorporation, corporate bylaws, information about initial directors and shareholders, and the funds to fulfill all legal and filing requirements.
Can a single person start their own corporation?
Yes, an individual can start their own corporation as the sole shareholder, director, and officer, taking on multiple roles within the company.
How long does it take to start a corporation?
The time required to form a corporation varies by state, but in many states the whole process can be completed in three to six weeks.
Can I incorporate in a different state than where I operate?
Yes, you can incorporate outside your state of operation, although you’ll be subject to additional fees and requirements. Delaware, Nevada, and Wyoming are popular for out-of-state incorporation, due to their business-friendly laws.
What’s the difference between an LLC and a corporation?
The main differences between an LLC and a corporation are taxation and structure. LLCs have pass-through taxation by default (business income passes to owners’ personal tax returns), while C corporations face double taxation. LLCs have more flexible management structures, while corporations require formal boards of directors and officers. Corporations can issue stock to raise capital, making them better suited for businesses seeking outside investors. LLCs generally have simpler record-keeping requirements than corporations.
Do I need a lawyer to start a corporation?
While you’re not legally required to hire a lawyer to start a corporation, professional legal guidance can be valuable, especially for complex business structures or multi-owner companies. Many entrepreneurs successfully incorporate using online filing services or directly through state websites. However, a lawyer can provide customized advice about corporate structure, stock issuance, and state-specific requirements. Consider consulting an attorney to review your documents, even if you complete most of the process yourself.