What Steps Are Involved in Forming a C Corporation?

By Christine Funk, J.D.

What Steps Are Involved in Forming a C Corporation?

By Christine Funk, J.D.

Forming a C corporation, or C corp., requires several distinct steps. Failure to comply with any one of the required steps could result in the revocation of C corp. status by the Internal Revenue Service (IRS). A C corporation isn't a good fit for every business, as it includes more formalities and a more complex structure than other entity types. However, if you decide a C corp. is the right choice for your business, take the following steps.

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1. Select and obtain a corporation name.

Your first step in establishing a C corporation is to select a company name. This may not be as easy as it sounds.

First, your company name should end in "Corporation," "Incorporated," "Limited," or an abbreviation of one of those words.

Second, you must check with your state business office about your selected name. You cannot use a name anyone else in the state already uses. Consequently, it is a good idea to come up with three or even five potential company names to send to the state business office for consideration.

Third, you must check with the U.S. Patent and Trademark Office to determine whether another company has trademarked your company name for use in another state. If so, you must come up with a new company name.

2. Appoint officers to the corporation.

At a minimum, you need a director for your corporation. If you are a small business owner, you may choose to make yourself the only director. This is also the time to select and identify any officers in the business. Again, if you are a solo business owner, you can designate yourself the only officer of the corporation.

3. File articles of incorporation with the state.

In addition to reserving a company name, you need to file articles of incorporation with the state. Some states refer to articles of incorporation as a certificate of incorporation. Other states use the word "charter." Contact the Secretary of State or other comparable authority to determine the title of the forms your state of incorporation requires. You can get copies of the forms from the Secretary of State's office. Business owners may choose to fill out the forms themselves. However, because they must be legally correct in order to be valid, many people choose to hire an attorney for this step.

Expect to pay a filing fee when you file your articles of incorporation. Fees vary based on jurisdiction. You do not have to file your articles of incorporation in the state where you live. There may be financial benefits to filing in another state, where the corporate tax rate is lower or where there are other business advantages.

4. Write company bylaws.

In order to have a corporation, there must be bylaws that detail the rules and guidelines for operating the business. At a minimum, bylaws should indicate who can vote and when to hold directors' meetings. Some smaller businesses make the mistake of skipping this step. The owner might think that because they are the only officer and director, there is no need to waste time writing down the fact that they are the only one who can vote or decide when to meet with themselves about the company's business. However, skipping this step can be fatal to the establishment of a C corporation. The company bylaws must be written, no matter how silly it might seem.

5. Issue stock.

Often, new business owners select a C corp. because of the benefits of issuing stock. However, this cannot be in name only. A business owner must actually issue shares of stock. Blank share certificates are available for purchase at office supplies stores or online. These shares indicate the percentage of the corporation each stockholder owns. In a single-person business, the owner would own 100 percent of the shares of business stock.

If there are fewer than 35 shareholders, C corporations do not have to register the shares with the Securities and Exchange Commission. Instead, the company can make a private offering. Again, even small business owners must take these steps to gain and retain legal C corp. status.

6. Hold directors' meetings as detailed in the bylaws.

Bylaws are not simply a document to write and then ignore. Directors' meetings must take place according to the schedule listed in the bylaws. The first meeting must include the approval of the bylaws. Minutes of every meeting must be kept in writing. The corporation must preserve these minutes and make them available upon request. Regular meetings of the directors must continue on the schedule detailed in the bylaws, or the company risks losing C corp. status.

A C corporation must take certain steps to establish and maintain its C corp. status. Even if the company is small, with only one officer, the steps are crucial for the company's survival and success.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.