by Richard Keyt, Arizona LLC, corporate and business lawyer

This article is part of a series of nine related articles I wrote about the seven types of entities used in Arizona to operate a business and to hold business assets and investment real estate. The articles are:  (1) the “Best” Arizona Entity, (2) limited liability companies, (3) sole proprietorships, (4) general partnerships, (5) limited partnerships, (6) C corporations, (7) S corporations, (8) business trusts, , and (9) the entity comparison table. The type of entity can have significant income tax and asset protection consequences. The articles discuss the entities in terms of ease and cost of formation, number of owners & restrictions on ownership, privacy, control and management, owners protection from liabilities of the entity, and federal income taxation issues.

C Corporation

Ease of Formation & Cost

The corporation, whether it be a C or an S corporation, is the most complex, difficult and costly entity to form under Arizona law. All for profit corporations created under Arizona law have the same legal structure, rights and powers. Arizona corporate law does not distinguish between a C corporation or an S corporation. Arizona recognizes that corporations may be formed for profit or not for profit, but not as C or S corporations.

A corporation is called a C corporation if it is taxed under Subchapter C of the Internal Revenue Code of 1986 or an S corporation if it is taxed under Subchapter S of the Internal Revenue Code. C corporations and S corporations are taxed substantially differently for federal income tax purposes, but structurally and for almost all other purposes, they are the same.

To form a corporation under Arizona law, you file Articles of Incorporation with the Arizona Corporation Commission (the “ACC”), submit a cover sheet and Certificate of Disclosure to the ACC along with the Articles and publish the Articles in a newspaper of general circulation the required number of times.  Although Arizona law no longer requires that the corporation submit an affidavit of publication to the ACC, I recommend that the corporation do it so it can easily prove years later that the corporation satisfied the publication requirement.

After forming the corporation, the directors named in the Articles should have an organizational meeting to adopt resolutions naming the officers of the corporation, approving the Bylaws and authorizing the opening of a bank account, the form of the stock certificate, and the issuance of stock to the stockholders.

The fee to file the Articles of Incorporation is $60 and $40 for a for profit and a nonprofit corporation, respectively. The fee to expedite the filing is another $35. The cost to publish the Articles depends on the length of the Articles. My standard Articles cost approximately $150 to publish in Maricopa County. A minute book kit that contains Bylaws, organizational minutes of directors and blank stock certificates is approximately $65. The total costs (excluding legal fees) to form a for profit Arizona corporation is approximately $310.

For a detailed step-by-step explanation of how to form an Arizona corporation, see my article entitled “How To Incorporate In Arizona – For Profit Corporations.”

Number of Owners & Restrictions

One person may form an Arizona corporation and be the sole stockholder, officer and director. There are no limits on the number of stockholders or the types of entities that can own stock of a C corporation. Caveat: Corporate stock may be a security for the purposes of federal and state securities laws, in which case securities law may limit the number and types of investor/stockholders.

Control & Management

Stockholders own a corporation, but the Board of Directors is responsible for managing the corporation. The stockholders elect the members of the Board of Directors at the annual meeting of stockholders. The officers of a corporation are responsible for the day-to-day operations of the corporation, and they report to and serve under the guidance of the Board of Directors.

A corporation has the most on going and expensive maintenance requirements of any Arizona entity. Arizona law requires that the stockholders hold an annual meeting. Directors should meet as often as necessary to manage the corporation and oversee the officers, but not less than once a year. Meetings of stockholders and directors must be called by giving proper notice pursuant to the procedures set forth in the Bylaws of the corporation. A quorum at each meeting is necessary to conduct a meeting and to approve any action. All meetings of directors and officers should be documented with written minutes signed by the appropriate people. Minutes and adopted resolutions should be kept in a minute book.

Arizona corporations must have a statutory agent, file an annual report with the ACC and pay a $45 fee to the ACC every year. If the annual report is not filed timely, the ACC assesses a penalty and will eventually revoke the charter of a corporation that does not file its annual report.

One of the advantages of the Arizona LLC over the corporation is that AZ LLCs do not have to file an annual report or pay an annual fee to the ACC.


Every year an Arizona corporation must file an annual report with the Arizona Corporation Commission. The annual report must state the names and addresses of all: (i) stockholders that own 20% or more of the stock, (ii) the directors, and (iii) the officers. This information is a matter of public record available on the ACC’s website.

Owner’s Protection from Liabilities

The general rule is that the stockholders, officers and directors of a corporation are not liable for the corporation’s obligations and liabilities. There are exceptions to this general rule such as directors may be liable for authorizing improper or illegal conduct.

There is a legal concept called “piercing the corporate veil,” which is the term given when a court disregards the corporate shield that normally protects stockholders from liability and imposes liability on one or more stockholders. When a court pierces the corporate veil, it is usually because the stockholders, officers and directors have not followed the formalities of operating in the corporate form. The risk of having the corporate veil pierced is why it is very important that corporations hold properly called and documented annual and special meetings of stockholders and directors and that they file their annual reports and pay the filing fee timely.

Federal Income Taxation

A C corporation is a separate taxpaying entity for the purposes of federal income tax law. It files an federal income tax return on Form 1120. To the extent a C corporation has taxable income, it must pay the corresponding tax. If a C corporation has losses, the losses must offset the corporation’s income. None of the profits, losses or other tax items of a C corporation are passed through to its stockholders or used on their personal income tax returns.

A C corporation has the potential to cause double taxation on income. For example, assume a C corporation owned by one stockholder has income of $100 and it pays federal income tax of $30 on that income. The C corporation then pays a dividend to its sole stockholder of $70, the amount of its after-tax funds. The stockholder must now report the $70 of income and pay a second or double tax on the $100 earned by the corporation.  If the dividend is a “qualifying” dividend, the amount of the dividend is taxed at the capital gains rate.  If the dividend is not a qualifying dividend and the stockholder’s marginal tax rate is 28%, the stockholder will pay $19.60 in federal income taxes. Together, the corporation and its stockholder pay $49.60, which is almost fifty percent of the $100 earned by the corporation. Double tax is a very bad thing and should be avoided if possible.

For more information about the federal income taxation of corporations, see IRS Publication 542, Corporations.

This article is a general discussion of the characteristics of C corporations. The article is not specific advice. Before choosing your new entity, you should consult with your accountant and business attorney and discuss your options and choose the type of entity that is best for you in light of your particular facts and circumstances.