Understanding Business Entity Types in the U.S.
C-Corporation (C-Corp)
A C-Corporation is a separate legal entity taxed independently from its owners. It is commonly used by startups seeking venture capital, companies planning to issue shares, or businesses expecting significant growth.
Key characteristics:
- Subject to federal corporate income tax
- Can issue multiple classes of stock
- No limit on number of shareholders
- Preferred by investors and institutional funding
Limited Liability Company (LLC)
An LLC is a flexible business structure combining limited liability protection with pass-through taxation (unless elected otherwise).
Key characteristics:
- Profits typically pass through to owners
- Fewer formalities than corporations
- Flexible management structure
- Suitable for small to mid-sized businesses
Choosing the Right State for Incorporation
Businesses are not required to incorporate in the state where the owners reside. Each state has different tax laws, filing fees, and compliance requirements.
Common States for Incorporation
Delaware
- Well-established corporate legal framework
- Specialized Court of Chancery
- Favored by investors and large corporations
Wyoming
- No state corporate or personal income tax
- Low annual compliance requirements
- Strong asset protection laws
Nevada
- No state income tax
- Business-friendly regulatory environment
- Higher filing and maintenance costs
Home State Incorporation
- Often required if business operations are physically located in one state
- Avoids foreign qualification requirements
Step-by-Step Process to Set Up an LLC
Step 1: Choose the State of Formation
Select a state based on operational location, tax exposure, and compliance costs.
Step 2: Select a Business Name
The name must be unique within the state and include “LLC” or “Limited Liability Company.”
Step 3: Appoint a Registered Agent
A registered agent is required to receive legal and government correspondence in the state of formation.
Step 4: File Articles of Organization
This document is filed with the Secretary of State and officially creates the LLC.
Step 5: Create an Operating Agreement
Although not always mandatory, this agreement defines ownership percentages, management roles, and profit distribution.
Step 6: Obtain an EIN
An Employer Identification Number (EIN) is required for tax filing, banking, and hiring employees.
Step-by-Step Process to Set Up a C-Corporation
Step 1: Choose the State of Incorporation
Most C-Corporations choose Delaware or their operating state based on funding and compliance needs.
Step 2: File Articles of Incorporation
This document outlines company structure, authorized shares, and registered agent details.
Step 3: Appoint Directors and Officers
Initial directors are appointed to oversee corporate governance.
Step 4: Draft Corporate Bylaws
Bylaws define voting rights, board procedures, and operational rules.
Step 5: Issue Stock Certificates
Shares are issued to founders or shareholders according to the capitalization structure.
Step 6: Obtain an EIN and Open a Business Bank Account
Required for federal tax reporting and financial operations.
State-Specific Compliance Considerations
Annual Reports and Franchise Taxes
- Most states require annual or biennial reports
- Franchise taxes may apply depending on state and entity type
Foreign Qualification
If a company operates in a state different from its incorporation state, it must register as a foreign entity.
Sales Tax and Nexus Rules
Businesses selling goods or services across states may need to register for sales tax based on economic nexus thresholds.
Example: Multi-State Business Setup
Scenario:
A technology consulting firm is owned by non-US residents and operates remotely.
- Entity Type: LLC
- State of Formation: Wyoming
- EIN obtained for U.S. tax compliance
- Foreign qualification required if later opening offices in California or Texas
- Pass-through taxation elected initially, with option to convert to C-Corp later
Cost and Professional Assistance Considerations
Entity formation costs vary by state and complexity. Professional incorporation services typically range between $150–$300 per incorporation, depending on:
- State filing fees
- Registered agent services
- EIN assistance
- Documentation preparation and compliance support
Professional guidance helps ensure accuracy, compliance, and long-term tax efficiency.
Why Proper Entity Setup Matters
Incorrect entity formation can lead to:
- Double taxation issues
- Compliance penalties
- Difficulty opening bank accounts
- Investor hesitation
- IRS classification errors
A structured setup ensures legal protection, tax efficiency, and operational clarity from day one.
How Trusty Accounts Can Help
Trusty Accounts assists clients with:
- LLC and C-Corporation formation across U.S. states
- EIN registration and IRS compliance
- State-specific filing and reporting requirements
- Ongoing tax planning and advisory support