The main types of corporations are the C-Corp, the S-Corp, the benefit corporation, the close corporation, the professional corporation and the nonprofit corporation. B-Corp certification gets lumped in too, though it’s not a legal structure. Some of these are true entity types under state law, and some are just tax elections or certifications layered on top. Sorting out which is which is most of the battle.
What are the different types of corporations?
| Type | Best for | Key feature |
|---|---|---|
| C-Corporation | Growth-focused businesses seeking investors | Unlimited shareholders, double taxation |
| S-Corporation | Small businesses wanting tax savings | Pass-through taxation, ownership limits |
| B-Corporation | Mission-driven companies | Certified social/environmental commitment |
| Benefit Corporation | Legally mandated social purpose | Stakeholder consideration required by law |
| Close Corporation | Family businesses, small groups | Fewer formalities, restricted stock transfers |
| Professional Corporation | Licensed professionals | Practice-specific liability protection |
| Nonprofit Corporation | Charitable organizations | Tax-exempt status, no private ownership |
C-Corporation: the default
When you incorporate without making any special tax election, you get a C-Corp. The corporation pays tax on its profits at the 21% federal corporate rate, and shareholders pay tax again on dividends. That’s the double taxation you’ve probably heard about.
What you get in return is flexibility. There’s no limit on the number or type of shareholders, foreign individuals and entities can own shares, and you can issue both common and preferred stock. A tech startup planning to raise a Series A from venture capitalists would typically form a C-Corp, because VCs want preferred stock with special rights and liquidation preferences.
It’s also the right fit if you plan to go public, need a complex ownership structure, or want to keep earnings in the business for growth.
S-Corporation: a tax election, not a separate entity
An S-Corp isn’t really a different type of corporation. It’s a tax status that any eligible C-Corp or LLC can choose by filing IRS Form 2553.
Income passes through to the shareholders’ personal returns, so there’s no corporate-level tax. Owners who work in the business pay themselves a reasonable salary and take the rest as distributions, which aren’t subject to self-employment tax. Take a consulting firm earning $200,000 a year with two owners. Electing S-Corp status could save them thousands in self-employment taxes.
The trade-off is a set of rules. An S-Corp can have at most 100 shareholders, all U.S. citizens or residents, only one class of stock, and it generally has to use a calendar tax year. It works best for owner-operated businesses with steady profits, simple ownership, and a plan to distribute most of the profit.
What’s the difference between a B-Corp and a benefit corporation?
The names are nearly identical, and they mean different things.
A certified B-Corp is a certification from B Lab, a nonprofit. Any corporation or LLC can pursue it. You need a score of 80+ points on the B Impact Assessment, which covers governance, workers, community, environment and customers. Certified companies publish annual impact reports, recertify every three years, and pay an annual fee based on revenue ($1,000 to $50,000+). Patagonia is a well-known example.
A benefit corporation is an actual legal entity type that you register with your state. Its directors must consider the impact on all stakeholders, not just shareholders, and it must pursue a general public benefit alongside profit. In exchange, directors get legal protection when they balance profit against purpose. It also has to produce an annual benefit report on its social and environmental performance.
| Feature | B-Corp (certification) | Benefit Corporation (legal structure) |
|---|---|---|
| Type | Third-party certification | State-recognized legal entity |
| Requirements | B Impact Assessment (80+ score) | State filing, benefit purpose |
| Cost | Annual fee ($1,000-$50,000+) | State filing fee only |
| Verification | B Lab audit | Self-reporting in most states |
| Availability | Any eligible business | States with benefit corp laws |
A company can be both. If you want the mission written into your legal structure, become a benefit corporation. If you want outside validation you can show customers and impact investors, get certified. We’d start with the legal structure, since it costs only the state filing fee, and add certification once the business can carry the annual fee.
When does a close corporation make sense?
A close corporation (or closely held corporation) is built for a small group of owners who want corporate liability protection without all the formality. Shareholder limits typically fall somewhere around 30-50, depending on the state. Shares can’t be freely sold to outsiders or listed on an exchange, and the company may be able to run without a board of directors, using a shareholder agreement that works much like a partnership agreement.
Picture three siblings inheriting their parents’ manufacturing business. A close corporation lets them run it informally, keep their liability protection, and stop outsiders from buying in. It isn’t available in every state, though, and the rules differ where it is.
Do licensed professionals need a professional corporation?
Often, yes. Depending on state law, physicians and surgeons, dentists, attorneys, CPAs, architects, engineers, veterinarians and psychologists may be required to use a professional corporation (or a professional LLC, where permitted). Every shareholder must hold the right professional license, and the name uses “PC,” “P.C.,” or “Professional Corporation.”
The liability protection is narrower than in a regular corporation. Picture three doctors who form a medical practice as a PC. Each is protected from business debts and from a colleague’s malpractice. None of them is protected from their own professional negligence. Which professions qualify, and how, varies a lot by state.
How is a nonprofit corporation different?
A nonprofit corporation exists for charitable, educational, religious, scientific or similar purposes, not to make money for owners. It has no shareholders or stock. Any surplus goes back into the mission, and its assets stay dedicated to exempt purposes.
Charities, religious organizations, schools, social welfare groups and trade associations all use this form. Most charitable nonprofits then apply for 501(c)(3) status, which brings federal income tax exemption, tax-deductible donations, possible state tax exemptions, and access to grants restricted to nonprofits.
How do you choose the right type of corporation?
Work through these questions in order and stop at the first yes:
- Are you a licensed professional? Look at a professional corporation.
- Is your purpose charitable or educational? Form a nonprofit corporation.
- Do you plan to raise venture capital or go public? Form a C-Corp.
- Is a social or environmental mission central to the business? Consider a benefit corporation, B-Corp certification, or both.
- Do you want pass-through taxation? Elect S-Corp status.
- Is it a family business with only a few owners? Look at a close corporation.
- None of the above? A standard C-Corp or an LLC.
Our view: most small, owner-run businesses land on question 5. If that’s you, compare an LLC taxed as an S-Corp with a corporation taxed as an S-Corp before you file anything. The LLC usually comes with fewer formalities.
Remember that state rules shape all of this. Close corporations aren’t available everywhere, benefit corporations exist in about 40 states plus D.C., the list of regulated professions varies, and your state may tax an S-Corp differently from the IRS.
Can you switch types later?
Yes, though some switches are easier than others.
| From | To | Process |
|---|---|---|
| C-Corp | S-Corp | File IRS Form 2553 |
| S-Corp | C-Corp | Revoke election or violate requirements |
| Corporation | Benefit Corporation | Amend articles, shareholder approval |
| LLC | Corporation | Formal conversion or merger |
Conversions can have significant tax consequences, some need shareholder approval, and the state has its own filing requirements. Timing matters too, especially for tax elections. Picking the right type at the start is cheaper than converting later.
Frequently asked questions
Can a corporation be more than one type?
Some combinations work. A company can be a C-Corp, a benefit corporation and a certified B-Corp all at once. It can’t be both an S-Corp and a C-Corp.
Which type of corporation pays the least tax?
For many small business owners, the S-Corp, thanks to pass-through taxation and self-employment tax savings. The best choice still depends on your situation.
Do I need a lawyer to form a corporation?
It’s not legally required. We’d recommend one for professional corporations, benefit corporations or complex ownership structures.
Your next step
Write down the one thing your structure has to do for you: attract investors, cut your tax bill, protect a mission, or satisfy a licensing board. That one priority eliminates most of the list above. Then check your state’s rules for the type that’s left, file your formation documents, and if you’re going the S-Corp route, file Form 2553 on time.