When & Why to Create a C Corporation in California
Are you starting or growing a business in California? One of the key decisions you’ll face is choosing the right business entity. While LLCs and S-corps are popular, some entrepreneurs and investors find a C corporation (C-corp) is the best fit. Below, our Fremont business formation attorney highlights when to consider forming a C-corp in California.
What is a C Corporation?
The California Franchise Tax Board describes a C-corp as a legal structure that creates a separate legal entity from its owners. A C corporation provides strong liability protection and allows businesses to issue multiple classes of stock. Unlike S-corps and LLCs, C-corps are taxed as separate entities. This means the business pays corporate income tax on profits at the corporate rate—and shareholders may also pay taxes on dividends at their individual tax rate (commonly referred to as “double taxation”).
Despite this tax structure, C-corps offer significant advantages in certain situations.
When to Create a C-Corp in California
Deciding whether to form a C-corp should be based on your long-term goals, funding needs, and ownership structure. Here are some scenarios where a C-corp makes the most sense:
- You plan to raise venture capital or seek investors: Most institutional investors and venture capital firms prefer investing in C-corporations because of their familiarity, predictability, and ability to issue preferred stock.
- You want to offer stock options or employee equity: If your business will offer employee incentives like stock options or an Employee Stock Ownership Plan (ESOP), a C-corp is often the best—or only—choice.
- You anticipate rapid growth or plan to go public: If your vision includes scaling nationally or listing your company on a stock exchange, a C-corp is generally the standard.
- You want perpetual existence: Unlike partnerships or sole proprietorships, a C-corp exists independently of the founders. Ownership can be transferred through stock sales without disrupting business operations.
Examples of Businesses that Work Well as C-Corps
- Technology Startups and SaaS Companies
These companies often seek outside investment and plan for scalability, making the C-corp structure ideal. - Biotech and Medical Device Firms
Due to their high capital needs and long development timelines, these businesses frequently structure as C-corps to attract investors. - Manufacturing and Product-Based Companies
Businesses with significant equipment, inventory, and growth potential may benefit from the structure and formalities of a C-corp.
Every Business is Unique—Get Legal Guidance
Creating a C-corp in California requires more paperwork and compliance—but it can open up valuable opportunities. Make sure it aligns with your long-term vision. An experienced business formation attorney can help you evaluate the pros and cons based on your business model, tax situation, and funding goals.
Contact Our California Business Lawyer for C-Corps Today
Lynnette Ariathurai is a California business formation attorney with deep experience forming C corporations. If you’re considering a C-corp, we are here to advise you. Contact our Fremont office today for a confidential consultation. We assist businesses across the Bay Area.