Entity type
A C-Corp is the structure venture investors expect. If you plan to raise from VCs, issue stock options, or eventually IPO or get acquired, this is usually the right entity.
Why choose a C-Corp
A C-Corporation is a separate taxable entity that can issue multiple classes of stock, grant employee stock options, and take on institutional investment cleanly. It's the standard for startups on a venture path — most VCs and accelerators require a Delaware C-Corp.
The trade-off is 'double taxation' (the company pays corporate tax, and shareholders pay tax again on dividends) and more formality — a board, bylaws, and annual meetings.
- Preferred by venture capital investors
- Can issue stock and grant employee options
- Multiple share classes for founders and investors
- Qualified Small Business Stock (QSBS) tax benefits may apply
When a C-Corp makes sense
Choose a C-Corp if you're building a high-growth startup that will raise priced rounds, hire a team with equity, and aim for an acquisition or IPO. Delaware is the usual state of formation because investors know its corporate law.
If you're bootstrapped or running a profitable small business, an LLC is usually simpler and more tax-efficient.
How your C-Corp is taxed (federal)
The corporation is taxed in its own right on Form 1120 at 21%; shareholders are taxed again on dividends ('double taxation').
A C-corp with a 25%-or-greater foreign shareholder must also file Form 5472 with its Form 1120. Dividends paid to non-resident shareholders are generally subject to 30% US withholding — often reduced by tax treaty — reported on Forms 1042/1042-S. A foreign corporation carrying on US business files Form 1120-F. Non-residents CAN own a C-corp (unlike an S-corp).
- The corporation files Form 1120 and pays a flat 21% federal corporate income tax on its profit.
- 'Double taxation': profits are taxed at the corporate level, then again on shareholders' returns when distributed as dividends.
- Pays quarterly estimated tax by electronic transfer when it expects to owe $500 or more for the year.
- Preferred for venture funding — losses and profits stay inside the entity, which suits reinvestment and QSBS.
Annual compliance & filings
The most formal structure — a board, bylaws, meetings, minutes, and a corporate tax return every year.
- Adopt bylaws, issue stock, and maintain a stock ledger and corporate records.
- Hold annual shareholder and board meetings and keep written minutes.
- File the state annual report / franchise tax and keep a registered agent.
- File Form 1120 every year and pay corporate tax — more governance overhead than an LLC.
FAQ