Business Formation

What is a C Corporation?

Unlike a sole proprietorship or a partnership, a corporation is a separate legal entity that is distinct from its owners. As such, the shareholders of a corporation are not personally responsible for corporate debts or liabilities unless the corporation failed to follow certain corporate formalities, including

  • holding annual corporate meetings,
  • recording the minutes of these meetings,
  • issuing stock certificates to shareholders,
  • electing directors, and
  • ratifying/confirming the status of existing directors.

To form a corporation, a company founder must register the corporation with the state in which the corporation is headquartered by paying a filing fee and submitting some corporate documents, such as an article of incorporation. If all the documents are in order, the Secretary of State will issue a certificate of incorporation. Although an attorney is not required to incorporate a business, some founders will often seek guidance from an attorney if they are unfamiliar with the filing requirements.

Like an individual, a corporation may enter into contractual agreements, be sued, and be taxed. Shareholders own the corporation and elect a board of directors to oversee the major decisions and policies of the business. Corporations have a life of their own and they do not dissolve if ownership changes.

Some corporations are for-profit while others are formed as non-profit entities. Both may be subject to increased government regulation and licensing fees than other types of business structures. In a corporation, the government taxes profits both at the corporate level and again when they are distributed to the company's shareholders.