What is C-Corporation?
A C-corporation is a US business entity taxed separately from its owners under Subchapter C of the Internal Revenue Code. It pays 21% federal corporate income tax on profits, and shareholders pay personal tax on dividends — the 'double taxation' of C-corp profits. Most VC-backed startups are Delaware C-corps.
Current Rate (Calendar year default; fiscal year permitted)
21% federal corporate income tax (separate from owner tax on dividends)
Example
Acme Inc., a Delaware C-corp, earns $1m profit. It pays $210,000 federal corporate income tax. The remaining $790,000 distributed as a qualified dividend to a single founder/shareholder (top bracket) attracts 23.8% (20% qualified div + 3.8% NIIT) = $188,020 personal tax. Total tax: ~40%.
How C-Corporation works in United States
C-corps offer: - Limited liability for shareholders - Unlimited shareholders (vs. 100 for S-corp) - Foreign and entity shareholders (vs. only US individuals + certain trusts for S-corp) - Multiple classes of stock (preferred, common A/B, etc. — required for VC investment) - Section 1202 QSBS exclusion (up to $10m or 10× basis tax-free on sale, after 5 years held)
Downsides: double taxation of distributed profits and more complex compliance.
Related terms
An S-corporation is a US entity that elects pass-through taxation under Subchapter S. The corporation itself pays no federal income tax; profits flow to shareholders' personal returns. Limited to 100 shareholders, all US individuals (or certain trusts), and one class of stock. Owner-employees must pay 'reasonable compensation' as W-2 wages subject to FICA.
An LLC is a US business entity that combines limited liability with flexible tax treatment. Single-member LLCs default to disregarded entity status (taxed as sole proprietor on Schedule C). Multi-member LLCs default to partnership taxation (Form 1065). LLCs can elect S-corp or C-corp tax treatment via Form 8832/2553.
Form 1120 is the annual federal income tax return for US C-corporations, due 15 April for calendar-year filers (15th day of the 4th month after fiscal year-end for fiscal-year filers). Six-month automatic extension available via Form 7004.
Confused by United States accounting jargon?
AccountsOS explains United States terms in plain English and applies the right rules to your books automatically.
Try Free