# What is C-Corporation?

Country: United States

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.

Source: https://www.irs.gov/businesses/small-businesses-self-employed/forming-a-corporation

## Related terms

- [S-Corporation](https://accounts-os.com/us/glossary/s-corp-us)
- [LLC (Limited Liability Company)](https://accounts-os.com/us/glossary/llc-us)
- [Form 1120 (C-Corp Annual Return)](https://accounts-os.com/us/glossary/form-1120)