C Corporation
A C corporation, or C corp, is a legal business entity taxed separately from its owners under Subchapter C of the IRS code. The company pays corporate income tax at the entity level, while providing limited liability protection to shareholders. C corps can issue multiple classes of stock and can have unlimited shareholders of any type, including corporations, partnerships, and foreign entities. It is the default legal structure for venture-backed startups in the United States and is required by most venture capital investors.
The defining feature of a C corp is the legal and tax separation between the company and its owners. The company files its own tax return (Form 1120) and pays federal corporate income tax (a flat 21 percent rate since the 2017 Tax Cuts and Jobs Act), and shareholders pay personal tax on any dividends received or gains realized when they sell their shares. This is the "double taxation" tradeoff: the same dollar of profit is taxed once at the corporate level and again at the shareholder level. C corps can issue multiple classes of stock (common and one or more series of preferred), can have unlimited shareholders, and can include shareholders that are corporations, partnerships, or foreign entities, which is why VCs require the structure. Most US startups specifically incorporate in Delaware (regardless of where they operate) because of Delaware's predictable corporate law, the Court of Chancery's deep experience with corporate disputes, and the comfort venture investors have with Delaware filings. The alternatives include S corporations (limited to 100 US-citizen shareholders, single class of stock, pass-through taxation) and LLCs (pass-through taxation, flexible structure, but unattractive to venture investors for several technical reasons).
Ryan's Take
Founders ask whether they should be a C corp or an LLC. If you plan to raise venture capital, the answer is C corp, in Delaware, and the rest of the conversation is just stalling. VCs cannot invest in LLCs without creating tax problems for their limited partners, so they require C corp conversion before they'll wire. If you wait and convert later, you're paying lawyers to undo the choice you should have made at incorporation. The double-taxation talking point gets thrown around like it's a deal-breaker. It isn't, because pre-profit startups have no profit to tax, and post-exit equity gets taxed at capital gains rates either way. Set up correctly on day one and stop debating it.
What founders get wrong: Defaulting to an LLC because it sounds simpler, then converting to a Delaware C corp under investor pressure right before a priced round. The conversion costs legal fees, creates tax events, and signals to the investor that the founders didn't plan for the round they're trying to raise. Start as a Delaware C corp if venture is the path.
Related: Startup · Cap Table · Preferred vs Common Stock · Founders Agreement
FAQ
What is a C corporation?
A legal business entity taxed separately from its owners under Subchapter C of the IRS code, providing limited liability and paying corporate income tax at the entity level. It is the default structure for venture-backed startups.
Why do startups incorporate as Delaware C corps?
Delaware C corps are required by most venture investors, can issue multiple classes of stock (including preferred for investors), allow unlimited shareholders of any type, and benefit from Delaware's predictable corporate law and the experienced Court of Chancery.
What is the difference between a C corp and an S corp?
A C corp is taxed at the corporate level (with shareholders also paying tax on distributions and gains), can have unlimited shareholders of any type, and can issue multiple classes of stock. An S corp has pass-through taxation, is limited to 100 US-citizen shareholders, and can issue only one class of stock, which makes it incompatible with venture investment.
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