C-Corporation
A C Corporation, or C-Corp, is a separate legal entity owned by shareholders, with its own rights and responsibilities distinct from the people who own it. It's the traditional corporate structure most associated with larger or growth-oriented businesses, particularly those seeking outside investment or planning to go public, because it offers a well-established framework for issuing stock, bringing on investors, and operating with formal governance. The tradeoff for this structure is that C-Corps face "double taxation"—the corporation pays tax on its profits, and shareholders pay tax again on any dividends they receive—along with more formal recordkeeping and governance requirements than an LLC.
Ownership and Control
C-Corps are owned by shareholders, who hold stock in the company. There's no limit on the number of shareholders a C-Corp can have, and ownership can be divided into different classes of stock with different rights (such as voting versus non-voting shares). Shareholders elect a board of directors to oversee major company decisions.
Liability Protection
Like an LLC, a C-Corp provides limited liability protection. Shareholders' personal assets are generally protected from the corporation's debts and legal liabilities, with their financial risk typically limited to what they've invested in the company.
Taxation Method
C-Corps are taxed as separate entities from their owners. The corporation pays federal and state corporate income tax on its profits, and if those profits are distributed to shareholders as dividends, shareholders pay personal income tax on that money as well—this is commonly known as "double taxation." Unlike an LLC, a C-Corp cannot elect to be taxed as a pass-through entity while remaining a C-Corp.
Management Structure
C-Corps follow a more formal management structure than LLCs. Shareholders elect a board of directors, who set overall company policy and appoint officers (such as a CEO, CFO, or Secretary) to manage day-to-day operations. This structure, along with rules for meetings and decision-making, is typically set out in the corporation's bylaws.
Ease of Raising Capital
C-Corps are generally considered the easiest structure for raising capital, particularly from venture capital firms or through a future public offering, because they can issue multiple classes of stock and are the entity type most investors are familiar with and prefer.
Ease of Formation
Forming a C-Corp involves more steps and formality than an LLC:
Choose a business name. Your corporation's name must be distinguishable from other registered business names in Kentucky and must include a corporate identifier such as "Corporation," "Incorporated," "Company," or an abbreviation like "Corp." or "Inc." You can check name availability through the Kentucky Secretary of State's website. Learn more about business names.
Appoint a registered agent. Every Kentucky corporation must designate a registered agent with a physical street address in the state to receive legal and official correspondence. Learn more about Registered Agents.
File Articles of Incorporation. This document is filed with the Kentucky Secretary of State, either online or by mail, along with the required filing fee. It officially creates your corporation and typically includes information like the number of authorized shares. The Kentucky Secretary of State website provides a lot of resources, incuding forms and guidance, for filing the Articles of Incorporation.
Adopt bylaws. While not filed with the state, bylaws are an internal governance document that should be adopted early, setting out rules for board and shareholder meetings, officer roles, and other corporate formalities. Learn more about Bylaws.
Hold an organizational meeting. The initial directors (or incorporators) typically hold a first meeting to adopt bylaws, appoint officers, issue stock, and handle other startup matters.
Issue stock. Shares are issued to the corporation's initial shareholders in exchange for their investment in the company.
Obtain an EIN. Apply for a free Employer Identification Number from the IRS, which you'll need for tax filings, hiring employees, and opening a business bank account. Learn more about EINs.
Register for state and local taxes/licenses. Depending on your business activities and location, you may need to register with the Kentucky Department of Revenue and obtain local occupational licenses or industry-specific permits. Learn more about taxes and licenses.
Ongoing Compliance
C-Corps face more extensive ongoing compliance obligations than LLCs. In addition to filing an annual report and paying associated fees with the Kentucky Secretary of State, C-Corps must hold regular shareholder and board meetings, keep meeting minutes, and maintain corporate records to preserve their liability protection.