The US C Corporation as a legal form: formation, officers, liability

A C Corporation is a stock corporation, comparable in structure and function to a European public limited company. The C Corporation is the most proven US legal form, and we recommend it to most clients for its legal certainty.

1Forming the company

C Corporations can be formed in every US state. Which state suits your plans best should mostly come down to practical considerations (closeness to potential employees, customers and so on).

1.1Applicable corporate law

As is usual in the English-speaking world, the USA follows common law. Corporate law is a matter for the states and varies from state to state, but the fundamentals are the same.

1.2Time to form

Formation times differ from state to state. Two days to two weeks is entirely normal.

1.3Formation fees

Formation fees also vary widely between states. Fees between $50 and $500 are typical.

2Officers and directors

A C Corporation has the following officers and bodies:

• President (the senior officer running the business)
• CEO (chief executive officer)
• Director (member of the Board of Directors, which runs the business or oversees how it is run)
• Treasurer (in charge of finances)
• Secretary (keeps the corporate records)

One person can hold several or all of the roles in a company. Unless otherwise specified, every officeholder counts as a managing officer.

3Share capital & shareholders

A C Corporation has share capital divided into shares. You can set the share capital at any amount, and it does not have to be paid in.

As with stock corporations elsewhere, different classes of shares can be issued. A C Corporation can also have an unlimited number of shareholders.

Shares in a C Corporation can be traded on the stock exchange.

3.1Registered shares

Registered shares are the norm in the USA, but they are often managed on paper certificates rather than electronically; corporate law (in Delaware, for example) also allows uncertificated shares. Shareholders are not stored in any central register, nor are they published in the state's public records. For electronic trading on an exchange, this arrangement would of course be impractical, so there the shareholders consent to electronic share administration.

3.2Shareholder agreement

The rules on the shareholder agreement differ across US states. Some states require no shareholder agreement at all. Others require an oral or written agreement. We advise every client to put a written shareholder agreement in place.

As a rule, the shareholder agreement does not have to be filed with the state.

4Liability

The liability rules are comparable to those of European limited companies. The C Corporation is a company with limited liability: the company is liable with all its assets, while shareholders are liable only up to their paid-in capital, not with their personal assets.

Members of management are personally liable only if negligence or intent can be proven.

In extreme cases, though, the liability shield may only partly hold: if it can be shown that a C Corporation with a single officer and shareholder is run like that person's private piggy bank, disregarding its status as a separate legal entity, liability protection can be limited.

The exception is the Nevada C Corporation: Nevada law expressly provides that liability protection remains intact even if management runs the company poorly.

5Public record with the state

Every state keeps its own business register, and these can be searched online. Exactly what gets published differs from state to state.

Typically, the details of one member of management and the company's address are published. Shareholder details cannot be seen in any state register.

5.1Ongoing state filings (annual report)

Most states, though not all, require an annual report. Don't confuse it with a tax return: the annual report is simply a filing with the state confirming the company details on record (such as registered address, management, business purpose and so on).

Some states require a report every two years instead of every year. Preparing and filing the annual report is included in our annual fee; state fees are charged separately.

5.2Annual state fees

Annual fees also differ from state to state. Some states only charge a fee when you file the annual report. Others levy an additional flat tax (franchise tax).

6Taxation

Learn more about how corporations are taxed

In the USA, the C Corporation pays federal corporate income tax (21%), plus any state corporate taxes. Dividends are then taxed again: US shareholders pay tax on them at rates of 0-37% (depending on holding periods and tax bracket); on distributions to foreign shareholders, the company withholds 30%, which a tax treaty can reduce.

The corporate tax return for the previous year is due by April 15. An extension to October 15 is easy to get. Most states also require an annual report, and a corporation that is at least 25% foreign-owned files Form 5472 if it had reportable transactions with related parties. 

Keep in mind that a state tax return may also be required. Our page US C Corp requirements and compliance covers the ongoing obligations in detail; the key advantages of the American C Corporation and our quick check for the best US legal form help you weigh your options. For the full picture, see our US company formation section.

In short

• The C Corporation is a stock corporation and can be formed in any state, usually within two days to two weeks.
• One person can hold every role; the share capital is freely chosen and does not have to be paid in.
• Shareholders are liable only up to their contribution, and their names appear in no state register.
• The corporation pays 21 percent federal corporate tax, plus any state taxes; the return is due by April 15, extendable to October 15.

How we help you

• Form a CorporationThe US corporation (Inc) for growth, investors and your visa.
• Apply for an EINYour company's US tax ID, applied for by us.
• Corporation tax returnForm 1120 and Form 5472 for your US corporation.
• Delaware holdingThe holding above your US companies, with one consolidated tax return.
• Company formation consultationEntity type, state and tax consequences, before you commit.