What it is:
A C-corporation (C-corp) is the classic regular corporation. The letter “C” is simply used to distinguish the regular corporation from an S–corporation (S-corp) (discussed below). 
The basic idea of a corporation is division between ownership, management, and conduct. The idea here is that in breaking apart the various parts of the business, we also separate and limit participants’ rights, responsibilities, and liabilities, and can narrowly shape each tier of participation.
Separating ownership from management means that ownership can be splintered off into numerous shares; helping the business to efficiently raise broad-based capital while distributing and minimizing investors’ financial risk. Management can remain relatively centralized.
A corporation provides limited liability. None of the participants are personally liable for corporate obligations. Managers are generally liable to the corporation and its shareholders for management decisions.
Shareholders own the business and elect managers (a board of directors).
Directors control business direction, and may appoint, elect, or hire officers.
Officers generally execute daily business operations under the board’s direction. (Certain directors may also be called officers if they hold board offices such as president of the board, etc.)
Although a corporation may require group decision-making, this is more of a hierarchy than a true democracy.
Who can do this:
Your state may require that incorporators (those who organize a corporation) meet certain age requirements or other qualifications.
Any individual or entity may be a shareholder in a C-corp. Shares are generally freely transferable subject to federal and state law, and the corporate bylaws.
Individuals serve as directors and officers.
There must generally be one or more directors. This may vary by state. Some states may also have director age restrictions or other qualifications.
Every corporation must generally have officers. Your state may require your corporation to have certain officers. Often, one person may hold two or more offices.
Directors generally do not have to be shareholders. (The very idea of the corporation has to do with dividing these roles.) Nonetheless, any one or more individuals may generally form a corporation and serve all necessary corporate positions. For example, a single individual may serve as sole shareholder, director, and often fill one or more offices. However, especially where corporate owners are also directors or officers, it is important that owners respect the corporate form. To maintain limited liability, corporate owners, directors, and officers must clearly treat the corporation as an entity separate and distinct from themselves.
If you are forming a corporation, you may specify in your bylaws any desired shareholder, director, and officer qualifications, and reasonable share transfer restrictions.
Who handles what:
Shareholders own the business and elect directors. Shareholder input may be required for certain board decisions.
The board of directors directs and manages the business and its affairs, and elects, appoints, or hires any officers.
The board of directors itself may have officers, such as president of the board or board secretary, etc. In general, though, the idea of corporate officers refers to operational or executive officers, who may be elected, appointed, or hired by the board to execute day-to-day operations under board direction. (A corporation may have board officers and operational officers. Board officers are directors and are liable as managers (more below). Operational officers who are not on the board are not liable as managers.)
To Whom You Are Responsible:
Shareholders, directors, and officers are generally not personally liable for the corporation’s obligations. Thus, shareholders’, directors’, and officers’ personal assets are not generally reachable by the corporation’s creditors or others to whom the corporation may be liable. Shareholders generally have no liability risk beyond the price paid for their shares.
(Warning: Where parties personally guarantee a debt or obligation, they cannot avoid personal liability for such guarantee.)
Limited liability rests on the valid existence of a separate and distinct entity. Thus, in spite of their general limited liability, shareholders may be held personally liable for acts carried out in the corporate name before the corporation is formed, in cases of defective incorporation, or in cases in which the corporate veil is pierced because the corporation is not treated by its participants as separate and distinct.
Directors are generally liable to the corporation and shareholders for managerial decision-making. Corporate directors are in a position of trust and confidence, and therefore generally owe fiduciary duties of loyalty and care to the corporation. Under the duty of loyalty, directors must act in the corporation’s best interests, in spite of any conflicting self-interest. Directors must refrain from doing anything that would injure the corporation or deprive it of any profit or advantage. Directors must not usurp corporate opportunities.
Under the duty of care, directors must carefully consider all material information in making business decisions. Directors must not act with gross negligence or reckless indifference to, or fail to act in light of, the available information.
When considering board decisions, courts generally apply the “business judgment rule”  when possible to respect the board as ultimate business manager, and to presume that board decisions are informed, made in good faith, and made under belief of the corporation’s and shareholders’ best interests. (This is not the case if there is evidence of director fraud, bad faith, or self-dealing.)
In most states, directors generally have an implied duty of good faith and fair dealing in carrying out their corporate rights and responsibilities.
In most states, directors generally have an implied duty of good faith and fair dealing in carrying out the terms of any agreement.
Per state law, and depending on corporate structuring, shareholders and officers may owe fiduciary or good faith duties.
In most states, all parties who enter into contracts have an implied contractual duty to carry out the terms of any contract in good faith and with fair dealing.
The corporation is liable for its debts, obligations, and liabilities to clients, customers, creditors, and anyone who incurs injury as a result of its goods or services, or wrongful or negligent actions.
The corporation and all participants are responsible for complying with any and all applicable laws, rules, regulations, procedures.
Your power to affect the business structure:
Most states’ business corporation statutes include numerous “default rules” regarding internal corporate governance, such that there is less wiggle room to modify the corporate form than there is with, for example, an LLC. Yet within the corporate structure, every corporation is unique.
You can design an ownership structure with varying share designations, preferences, rights, and interests. You can specify reasonable share transfer restrictions to define who may be an owner of the corporation.
You can determine director and officer qualifications, rights, and responsibilities.
You generally design your hierarchical management and operational structures. You determine the roles of officers. For example, you might have a company president or chief executive officer (CEO) who acts as an agent for the business and liaison to the board; translating board direction into company vision, and overseeing daily conduct. If the corporation is large enough, you might also have a chief operating officer who reports to the company president or CEO. You might have board officers who are directors, serving specific offices such as president of the board, board secretary, or board treasurer. You might have both; board officers and operating officers. You determine who has decision-making power, and who exercises business conduct.
You generally determine shareholder and management meeting structures, procedures, frequency, notification requirements, etc. Most state acts require at least one annual shareholder meeting to elect directors.
How long your business lasts:
Your corporation may continue to exist indefinitely, regardless of changes in ownership or management.
How you get paid:
Shareholders may receive dividends (distributions of corporate after-tax earnings). Shareholders who are also employees may receive employee compensation.
Officers are generally employees, and may receive employee compensation. 
Directors may receive compensation for director services as independent contractors, not employees. 
Directors who receive
director services compensation and are also officers or shareholder employees
may receive compensation that is in part independent contractor compensation,
and in part employee compensation. 
Your corporation may use a cash, accrual, special, or hybrid accounting method that clearly reflects the business’s income and expenses.  Many corporations will use the accrual method. Corporations with average annual gross receipts exceeding $5 million must generally use the accrual method. The accrual method must generally be used for sales and purchases of inventory, but qualifying small business taxpayers may be excepted. Corporations should consider the accounting methods of any related entities.
Keep accurate records, and maintain supporting evidence for your entries.
Please consult an accountant regarding your particular circumstances.
Corporations pay their own income tax at corporate tax rates. Your corporation will be responsible for federal income tax/estimated tax, and any applicable employment and excise taxes. 
If the corporation distributes dividends to shareholders, these come out of its after-tax earnings and profits. Shareholders must then pay personal tax on those dividends. Because both the corporation and shareholders pay such tax, this is often referred to as a double tax.
Shareholder employees pay personal income tax on their compensation, but the corporation may deduct normal business expenses, including “reasonable” compensation paid to shareholder employees.  This form of corporate shareholder income accomplishes a single level of tax. For this reason, the IRS is keen to, and may re-characterize, shareholder employee compensation that is artificially inflated to allow the corporation to wrongfully avoid properly characterizing dividends. 
Corporations may deduct the costs of certain fringe benefits provided to employees, may exclude from income or defer certain gains, and may treat certain losses as net operating losses; carrying them forward or back. 
The corporation is taxed on the gain received upon sale of appreciated assets.
Corporations may generally elect to use a calendar or fiscal year.
To accomplish tax-free transfers of property in exchange for ownership, the transferor must own at least eighty percent (80%) of the corporation’s total voting power immediately after the transfer.
Please consult an accountant or other tax professional regarding the applicability of corporate tax requirements to your unique circumstances.
Annual State Business Filings and Formalities:
Corporations must generally file annual reports with the Secretary of State, and pay required annual fees. Additional filings may be required upon certain events, such as changes in issued shares or paid in capital, or merger or consolidation.
Your corporation must generally hold at least one annual shareholders’ meeting, and shareholders must generally receive proper notice of meetings. Your state may require that shareholders receive notice in writing a specific number of days before particular meetings. Please refer to your statute. Always record minutes of shareholders' meetings, and maintain these among your corporate records.
Your state may require at least one annual board meeting. Directors must generally hold regular meetings to carry out managerial business, and should record meeting minutes, resolutions, and all board actions, and maintain these corporate records.
Your corporation must keep corporate books and records, and make these reasonably available to shareholders. Certain books or records may be required to be available at shareholders’ meetings. Consult your state act.
Consult your state’s business corporation act regarding the various rules and formalities applicable to your corporation.
Corporate case law is well-developed, and the corporate form is likely to be understood and well-received in the marketplace. This can be advantageous to your business. Additionally, limited liability is a great benefit. However, doing business in the corporate form requires that you truly understand the entity as separate from yourself. You cannot address this distinction with empty rhetoric. It must be real. If you do not respect the corporate form, the law will not respect your business as an entity, and you will be held personally liable for your business debts, liabilities, and obligations. Your corporate formalities do not have to be a big deal; activities such as holding annual meetings, memorializing transactions, filing annual reports, etc., do not have to take a lot of time, but they must happen, and they do go a long way.
The major disadvantages of the corporate form are its required governing formalities, and its separate income and double dividend taxation.
If your corporation will be a smaller to mid-sized entity whose primary payment structure will not be based on dividends, if you will seek broad-based financing through sales of equity shares, if you desire free share transferability or the convenience of share options for use as employee incentives, or if you will gain from certain corporate tax benefits, and if you have no problem realizing the distinction between yourself and the entity,  this may be a business form to consider.
What it is:
A close corporation as designated in this information page is a business that is incorporated under a state business corporation statute specifically designed to allow a special variety of corporation with a limited number of owners.
A close corporation is distinguishable from a “closely-held” corporation. A “closely-held” corporation, or “closely-held” business, is any non-public business or corporation with relatively few owners, including a close corporation. But, all closely-held businesses are not necessarily formed under close corporation statutes. Closely-held is a common-law term, not a statutory term. The term closely-held developed out of a greater discussion taking place in courts of law throughout the nation. Statutory terms are words that are defined in state or federal statutes. Close corporations are defined by state statute.
Close corporation statutes generally permit shareholders to manage the business in place of directors. In such case, shareholders are liable for management decisions and have fiduciary duties. The shareholders may generally execute unanimous shareholder agreements (like bylaws) regarding corporate governance issues, and dispense with certain formalities (such as required shareholder meetings to elect directors).
Some statutes may limit the number of shareholders permitted in close corporations.
A close corporation may generally be treated as a C-corporation, or elect to be treated as an S-corporation.
The close corporation has a history as a vehicle for family business or owner-investors who would have entered into limited partnerships, but prefer the close corporation’s liability protection and shareholder management feature (limited partners may not participate in management). Member-managed LLCs are now considered and often favored by such owner-investors.
What it is:
A professional corporation is a business owned, managed, and conducted by individuals who are licensed to engage in professional services, such as accountants, attorneys, nurses, dentists, doctors, etc. All shareholders, directors, officers, agents, and employees must generally be licensed in a single professional field.
Professional corporations are governed by state business statutes, and the practices are governed by the rules of the regulating authorities that license the respective professions.
Public policy prevents such professionals from avoiding personal liability for their services. Thus, while individual practitioners are always liable for their own actions, the professional corporation (sometimes called a professional service corporation or personal service corporation) shields the practitioners from each others’ liabilities.
The IRS generally classifies professional corporations as personal service corporations, and requires a calendar tax year. Professional corporations may generally be treated as C-corporations, or elect to be treated as S-corporations.
The LLC is now more popular than the professional corporation, but for some the LLC may present disadvantages. It is not treated uniformly throughout the states, and therefore not received nationally with consistent understanding. Its case law is less developed, and in some states its required formation and annual fees may be substantial. Where an LLC is not ideal, professional corporations may elect S-corp status for pass-through tax treatment.
 (And a few notes on Close and Professional Corporations.)
 I.R.C. § 1361(a)(2) (1986).
 The business judgment rule is a common law principle.
 See I.R.C. §§ 3121 (d)(1), 3306 (i), and 3401 (c) (1986).
 I.R.S. Pub. 15-A, Employer’s Supplemental Tax Guide 5 (2013), available at http://www.irs.gov/pub/irs-pdf/p15a.pdf.
 See Rev. Rul. 58-505, 1958-2 C.B. 728.
[7 I.R.S. Pub. 542, Corporations 8-9 (2012), available at http://www.irs.gov/pub/irs-pdf/p542.pdf.
 See I.R.S. Pub. 535, Business Expenses 6-8 (2012), available at http://www.irs.gov/pub/irs-pdf/p535.pdf.
 Id. at 6. For a discussion of how to determine compensation reasonableness, see, e.g., Haffner’s Service Stations, Inc. v Commissioner, 326 F. 3d 1, 8-12 (1st Cir. 2003) (describing the tax issue and corresponding reasonableness tests throughout the circuits).
Under current law, both dividends and wages are treated as ordinary income to the recipient and taxed at the same rate. But for the corporation that makes the payments, wages are deductible while dividends are not. In close corporations, there is an obvious incentive to disguise dividend distributions as compensation expenses. See 26 C.F.R. § 1.162-7(b)(3) (2002). The opportunity exists because leading shareholders are also often managers of the company, and the benefit is obvious: by reducing corporate taxes, more accrues to the shareholders. See generally, e.g., 7 Mertens Law of Federal Income Taxation §§ 25E:04, 25E:29 (1996) ("Mertens").
The Internal Revenue Code limits deductibility to "reasonable" compensation, 26 U.S.C. § 162(a)(1), which serves in part as a safeguard against conversion of dividends into salary. Treasury regulations — which are binding on us unless inconsistent with the statute, see Boeing Co. v. United States, ___ U.S. ___, 123 S.Ct. 1099, 1106-07, 155 L.Ed.2d 17 (2003) — require reasonableness to be based on "all circumstances." 26 C.F.R. § 1.162-7(b)(1) (2002). What subsidiary factors are considered in this test of reasonableness is apparently a question of first impression in this circuit.
Other circuits and the Tax Court have employed multi-factor tests, the factors ranging from a handful to almost two dozen in various formulations. See Bittker & Lokken, Federal Taxation of Income, Estate and Gifts ¶ 22.2.2 (3d ed.1999) (collecting cases and discussing factors); 7 Mertens, § 25E:11-29 (same). By and large, longer lists include elements that, in shorter ones, are grouped together. The Second Circuit offers a typical example of a short collection: the employee's role, payments by comparable companies, nature and condition of the company (e.g., earnings), incentives to distort, and consistency of compensation within the company.Dexsil Corp. v. Comm'r, 147 F.3d 96, 100 (2d Cir.1998).
The Seventh Circuit, in Exacto Spring Corp. v. Commissioner, 196 F.3d 833 (7th Cir.1999), has vividly criticized the existing multi-factor tests as unpredictable. Id.at 835. The company reads the decision as laying down a single-factor test which asks whether "an independent investor" would approve the disputed compensation as a reasonable reward for the manager's performance. It asks us to adopt the test for this circuit. But in Exacto Judge Posner conceded that the independent investor test was not an exclusive answer to the problem, id. at 839, and Exacto's emphasis on the company's profits reflected in part the character of that case.
There is always a balance to be struck between simplifying doctrine and accuracy of result, and for the present we think that multiple factors often may be relevant. Exacto remains a useful reminder that reasonableness under section 162(a)(1) is not a moral concern or a matter of fairness; the inquiry aims at what an arm's-length owner would pay an employee for his work. The problem is that the actual payment — ordinarily a good expression of market value in a competitive economy — does not decisively answer this question where the employee controls the company and can benefit by re-labeling as compensation what would otherwise accrue to him as dividends.
 See I.R.S. Pub. 542, Corporations 9-21 (2012), available at http://www.irs.gov/pub/irs-pdf/p542.pdf.
 It is best if you are organized and responsible in your handling of corporate formalities, or have someone organized working with or for you. Doing things such as meticulously recording all transactions, making your intentions explicit (an attorney can be a great help with this), and separating all things business from all things personal can help to make real your recognition of the corporate form.