How to Incorporate a Business in the United States
A corporation is the standard structure for businesses planning to raise investment, issue stock, or scale toward an exit. This guide covers C-Corps, S-Corps, how to incorporate, what it costs, and how to decide if a corporation is the right entity for your business.
What Is a Corporation?
A corporation is a legal entity that exists independently from its owners. When you incorporate, you create a separate “legal person” that can enter contracts, own property, sue and be sued, and continue to exist even if the founders leave. It’s the oldest and most established business structure for companies that plan to grow beyond a single owner.
Corporations are owned by shareholders, managed by a board of directors, and operated day-to-day by officers (CEO, CFO, Secretary, etc.). This three-tier structure is what makes corporations attractive to investors — it separates ownership from management and creates clear governance rules.
C-Corp vs. S-Corp: Two Tax Paths
Every corporation in the United States starts as a C-Corporation by default. A C-Corp pays corporate income tax on its profits at a flat 21% federal rate, and shareholders pay tax again when profits are distributed as dividends — this is known as “double taxation.”
To avoid double taxation, eligible corporations can elect S-Corporation status by filing IRS Form 2553. An S-Corp passes profits through to shareholders’ personal tax returns, eliminating the corporate-level tax. However, S-Corps have restrictions: a maximum of 100 shareholders, only US citizens or residents, and a single class of stock.
C-Corporation vs. S-Corporation
Same legal entity, different tax treatment. Choose the path that fits your business goals.
C-Corporation
The default corporate structure. Pays corporate tax at the entity level. The standard for venture-backed startups, companies planning an IPO, and businesses that want to retain earnings at a lower tax rate.
- 21% flat federal corporate tax rate
- Unlimited shareholders, any nationality
- Multiple classes of stock (common + preferred)
- QSBS — up to $10M tax-free capital gains
- Retained earnings taxed at 21%, not personal rates
- Required structure for VC funding and SAFEs
S-Corporation
A tax election — not a separate entity type. Eliminates double taxation by passing profits through to shareholders’ personal returns. Saves $3K–$15K+ per year in self-employment taxes for profitable businesses.
- Pass-through taxation — no corporate-level tax
- Salary + distribution split reduces SE tax
- Maximum 100 shareholders
- US citizens and residents only
- Single class of stock only
- Requires “reasonable salary” for owner-employees
Key insight: An S-Corp is not a different type of company — it’s a tax election you make with the IRS. You can form an LLC or a corporation and then elect S-Corp tax status. Most small businesses that want S-Corp benefits form an LLC and elect S-Corp taxation, getting the simplicity of an LLC with the tax savings of an S-Corp. Read our LLC vs. S-Corp comparison.
Benefits of Incorporating
Why corporations remain the gold standard for businesses that plan to scale.
Limited Liability
Shareholders’ personal assets are fully protected from corporate debts, lawsuits, and creditor claims. The strongest liability shield available.
Raise Capital
Issue common and preferred stock, use SAFEs and convertible notes, bring on angel investors and VCs. Corporations are the only structure most investors will fund.
QSBS Tax Exclusion
Qualified Small Business Stock allows up to $10M or 10x your investment in tax-free capital gains. Only available to C-Corp shareholders.
Stock Options & Equity
ISOs, NSOs, RSUs, and equity compensation plans to attract and retain top talent. Essential for competing with Big Tech for engineering hires.
Perpetual Existence
A corporation continues to exist regardless of ownership changes. Founders can leave, shareholders can sell — the company lives on.
Transferable Ownership
Shares can be bought, sold, gifted, or inherited without disrupting business operations. Clean exit path for founders and investors.
Retained Earnings
C-Corps can retain earnings at the 21% corporate rate — often lower than personal income tax rates. Reinvest profits without triggering personal taxes.
Global Credibility
The “Inc.” suffix is recognized worldwide. Corporations signal permanence, governance, and professionalism to clients, partners, and governments.
How to Incorporate — Step by Step
The complete process from choosing your state to issuing shares. Most founders finish in under an hour.
Choose Your State
Delaware is the standard for VC-backed companies (Court of Chancery, established case law, investor-friendly). Most other businesses should incorporate in their home state to avoid foreign qualification.
Name Your Corporation
Must include “Inc.”, “Corp.”, “Corporation”, or “Incorporated.” Check availability on your state’s Secretary of State website and consider reserving the name if you’re not ready to file immediately.
Appoint Directors & Registered Agent
Most states require at least one director. You’ll also need a registered agent with a physical address in your state of incorporation to receive legal documents and state notices.
File Articles of Incorporation
Submit your Certificate of Incorporation (Delaware) or Articles of Incorporation (most other states) to the Secretary of State. Include your authorized share structure — typically 10M shares of common stock at $0.0001 par value for startups.
Adopt Bylaws & Hold Initial Meeting
Draft corporate bylaws governing board meetings, officer elections, and shareholder rights. Hold an organizational meeting of the board to adopt bylaws, appoint officers, and authorize share issuance.
Issue Stock & Get Your EIN
Issue founder shares via stock purchase agreements or restricted stock agreements. Apply for a federal EIN from the IRS — free and required for banking, hiring, and taxes. Elect S-Corp status (Form 2553) if applicable.
Post-incorporation checklist: Open a business bank account, file your BOI report with FinCEN, set up your cap table, obtain any required business licenses, apply for an 83(b) election within 30 days of restricted stock grants, and calendar your annual report and franchise tax deadlines.
How Much Does It Cost to Incorporate?
Incorporation costs more than an LLC upfront and requires more ongoing compliance.
Formation Costs (One-Time)
- State filing fee: $50–$500 (varies by state)
- Delaware incorporation: $89 filing + $50 registered agent minimum
- Registered agent: $100–$299/year
- Bylaws drafting: $0 (template) to $1,000+ (attorney)
- EIN registration: $0 (free from IRS)
- Stock certificates: $0–$50 (optional, most use digital cap tables)
Ongoing Costs (Annual)
- Delaware franchise tax: $400–$200K+ (based on shares or assumed par value method)
- Annual report: $50–$300 (varies by state)
- Registered agent: $100–$299/year
- Corporate tax preparation: $500–$5,000+ (more complex than LLC returns)
- Payroll (if S-Corp): $500–$2,000/year for payroll service
- State income/franchise taxes: varies by state
How Corporations Are Taxed
C-Corp Taxation: The 21% Flat Rate
C-Corporations pay a flat 21% federal corporate income tax on net profits. When remaining profits are distributed to shareholders as dividends, shareholders pay a second layer of tax — typically 15% or 20% on qualified dividends. This “double taxation” is the primary drawback of C-Corp status, but several strategies mitigate it:
Reinvesting profits into the business avoids the dividend tax entirely. Paying shareholder-employees a reasonable salary converts would-be dividends into deductible business expenses. And the QSBS exclusion can eliminate capital gains tax entirely on a qualifying exit — up to $10M or 10x the adjusted basis of the stock.
S-Corp Taxation: Pass-Through with Payroll Savings
S-Corporations don’t pay corporate tax. Instead, profits and losses pass through to shareholders’ personal tax returns, similar to an LLC taxed as a partnership. The key advantage is the salary/distribution split — shareholder-employees pay themselves a “reasonable salary” (subject to payroll taxes) and take remaining profits as distributions (not subject to self-employment tax).
For a business earning $150,000 in net profit, an S-Corp election can save $8,000–$12,000 per year in payroll taxes compared to a sole proprietorship or single-member LLC. The breakeven point is generally around $60,000 in net profit — below that, the payroll and compliance costs outweigh the tax savings.
QSBS: The $10 Million Tax-Free Exit
Section 1202 Qualified Small Business Stock (QSBS) is one of the most powerful tax benefits available to C-Corp founders. If you hold qualifying C-Corp stock for at least 5 years, you can exclude up to $10M (or 10x your cost basis) from federal capital gains tax when you sell. For a founder who invested $100,000 and sells for $1M+ after 5 years, the entire gain can be tax-free. This benefit is only available to C-Corp shareholders — not LLCs, not S-Corps.
When Should You Incorporate?
A corporation isn’t always the right choice. Here’s when it makes sense — and when it doesn’t.
✓ Incorporate If…
- You’re raising or planning to raise venture capital
- You want to offer stock options to employees (ISOs)
- You have or expect foreign shareholders
- You want QSBS tax-free exit eligibility
- You plan to IPO or be acquired
- You’re retaining significant earnings in the business
- You need multiple classes of stock (common + preferred)
✗ Consider an LLC Instead If…
- You’re a solo founder or small partnership
- You’re not raising outside investment
- You want maximum tax flexibility
- You want simple compliance with no board meetings
- You’re a freelancer, consultant, or agency
- You own rental properties or passive investments
- You want to avoid double taxation without restrictions
Most small businesses don’t need a corporation. An LLC with pass-through taxation covers the vast majority of use cases. Only incorporate if you have a specific reason — investors, stock options, QSBS, or institutional credibility requirements. You can always convert an LLC to a corporation later when the time is right. Read our LLC vs. C-Corp comparison.
Corporation Comparisons
Side-by-side guides to help you decide which entity type is right for your business.
C-Corp vs. S-Corp
Same legal entity, different tax treatment. Compare corporate taxation, investor compatibility, QSBS eligibility, ownership restrictions, and ideal use cases.
Read the comparison →LLC vs. C-Corp
Flexibility vs. fundraising power. When a C-Corp makes sense over an LLC — and when it doesn’t. Tax implications, governance, and growth considerations.
Read the comparison →LLC vs. S-Corp
When to add S-Corp tax status to your LLC. The $60K breakeven point, self-employment tax savings, payroll requirements, and conversion process.
Read the comparison →Why Delaware? The Default for Startups
More than 60% of Fortune 500 companies and the vast majority of VC-backed startups are incorporated in Delaware. There’s a reason — and it’s not the tax rate.
Court of Chancery
Delaware’s Court of Chancery is a dedicated business court with judges (chancellors) who specialize exclusively in corporate law. There are no juries — cases are decided by legal experts with deep knowledge of corporate governance. This creates predictable, well-reasoned rulings that give companies and investors confidence in how disputes will be resolved.
Established Case Law
Over a century of corporate case law means that almost every governance question has already been litigated and decided in Delaware. Investors, law firms, and corporate boards know exactly what the rules are — and that predictability is worth a premium.
Investor Expectations
VCs expect Delaware C-Corps. Term sheets, SAFEs, convertible notes, and standard fundraising documents are all drafted assuming Delaware law. Incorporating elsewhere means your lawyers have to customize everything — adding time, cost, and friction to every round.
When Delaware Doesn’t Make Sense
If you’re not raising VC, not planning an IPO, and not issuing stock options, Delaware adds cost without adding value. You’ll need to foreign-qualify in your home state (additional fees and compliance), pay Delaware franchise tax ($400+ annually), and maintain a Delaware registered agent. For most small businesses, home-state incorporation is simpler and cheaper.
Incorporate by State
Filing fees and requirements for forming a corporation in each US state.
Alabama
Corp: $200
Guide →Alaska
Corp: $250
Guide →Arizona
Corp: $60
Guide →California
Corp: $100 + $800 tax
Guide →Colorado
Corp: $50
Guide →🏛️ Delaware
Corp: $89
Guide →Florida
Corp: $70
Guide →Georgia
Corp: $100
Guide →Illinois
Corp: $150
Guide →Massachusetts
Corp: $275
Guide →Nevada
Corp: $75
Guide →New York
Corp: $125
Guide →Texas
Corp: $300
Guide →Washington
Corp: $180
Guide →Wyoming
Corp: $100
Guide →All 50 States
Full directory →
View all →Filing fees are approximate and subject to change. Most popular states shown — view all 50 state guides for the complete directory.
Corporation Guides for Specific Situations
Detailed guides for specific corporate scenarios and industries.
Delaware C-Corp for Startups
The standard playbook: Delaware incorporation, 83(b) elections, QSBS setup, stock vesting, and how to structure your cap table before your first raise.
Read the guide →S-Corp Tax Savings Calculator
How much can you save with an S-Corp election? The math behind reasonable salary, distribution splits, and the $60K breakeven analysis.
Read the guide →QSBS: The $10M Tax-Free Exit
Section 1202 eligibility requirements, holding period rules, stacking strategies for married couples, and common mistakes that disqualify your shares.
Read the guide →Stock Options Explained
ISOs vs. NSOs vs. RSUs. How to set up an equity compensation plan, 409A valuations, exercise windows, and tax implications for employees and founders.
Read the guide →83(b) Election Guide
Why every founder receiving restricted stock must file an 83(b) election within 30 days. The tax consequences of missing the deadline — and how to file correctly.
Read the guide →US Corp for Non-Residents
How foreign founders can incorporate a C-Corp in the US without a visa. Delaware setup, banking, EIN without SSN, and US tax obligations for non-residents.
Read the guide →Corporation Formation FAQ
Answers to the most common questions about incorporating a business.
How long does it take to incorporate?
The filing process takes 15–30 minutes. State processing times range from same-day (Delaware offers 24-hour and same-day service) to 2–4 weeks for standard processing. Most states process within 5–10 business days.
What’s the difference between Inc. and Corp.?
Nothing — they’re interchangeable. “Inc.” is short for “Incorporated” and “Corp.” is short for “Corporation.” Both indicate the same legal entity type. Choose whichever sounds better with your company name.
Should I choose a C-Corp or S-Corp?
If you’re raising VC, need multiple stock classes, or have foreign shareholders: C-Corp. If you’re a profitable business wanting to save on self-employment taxes with no plans to raise institutional funding: S-Corp. You can always elect S-Corp status later or revoke it if you decide to raise VC.
How many shares should I authorize?
For startups planning to raise VC: 10,000,000 shares of common stock at $0.0001 par value is standard. This gives you enough shares for founders, employees, and multiple funding rounds without needing to amend your charter. For small businesses not raising investment, 1,000–10,000 shares is sufficient.
Can a non-US citizen incorporate in the US?
Yes. There are no citizenship or residency requirements to form a C-Corp. S-Corps require all shareholders to be US citizens or permanent residents. Foreign founders typically incorporate a Delaware C-Corp and can obtain an EIN without a Social Security Number.
Do I need a lawyer to incorporate?
For a simple incorporation, no — you can self-file or use a formation service. However, if you’re setting up a VC-ready structure with stock vesting, 83(b) elections, and a cap table, legal counsel is strongly recommended. Mistakes at formation can be expensive to fix later.
Can I convert my LLC to a corporation?
Yes. Most states allow statutory conversion from an LLC to a corporation. The process typically involves filing a Certificate of Conversion and Articles of Incorporation with your state. You’ll need to adopt bylaws, issue stock, and restructure your operating agreement into corporate governance. Consult a tax advisor — the conversion can trigger tax events.
What’s the Delaware franchise tax, and how do I minimize it?
Delaware franchise tax is calculated using either the “Authorized Shares” method or the “Assumed Par Value Capital” method. Startups with millions of authorized shares can owe $100K+ under the default method. Switch to the Assumed Par Value Capital method — most startups pay the $400 minimum. Your registered agent or accountant can file this.
Ready to Incorporate?
Choose your state, file your Articles of Incorporation, and launch your corporation — most founders complete the process in under an hour.
Free legal education • All 50 US states • No account required
