C-Corporation.
The venture-backed startup default. Shares, stock options, board.
A C-corp is the standard entity for raising venture capital. Its shares can be sliced into preferred and common classes, issued as options, and owned by foreign investors — all features VCs require. The trade-off is double taxation and real governance overhead.
How the IRS sees this entity.
Entity taxed + dividends taxed (double)
The corporation pays tax on profit (currently 21% federal). Distributed dividends are then taxed again on the shareholder's personal return. The trade-off for raising venture capital.
What you owe, and when.
Forming the entity is the easy part. Here's the recurring paperwork that keeps it alive.
What this trades, and for what.
- The entity VCs actually fund
- Multiple stock classes (preferred + common)
- Unlimited shareholders, including foreign
- QSBS (§1202) can exempt $10M+ in gains
- Stock options for employees
- Double taxation on distributed profits
- Real governance: board, bylaws, minutes
- Higher annual compliance costs ($1k–$5k+)
- Franchise taxes even at zero revenue (Delaware: $400+ minimum 2026)
The founders this fits.
- Venture-backed startups on standard YC/preferred docs.
- Companies planning multiple stock classes.
- Global founding teams with non-U.S. shareholders.
- Businesses targeting QSBS (§1202) exit treatment.
You're a consultancy, solo founder, or just want a tax-efficient structure.
Where to actually file.
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Court of Chancery, flexible corporate statute, standard investor docs. Non-negotiable for priced rounds.
When to move on.
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Triggered when: Pivoted to a bootstrapped cash-flow business.
Rare. Check QSBS reset implications before doing this.
Related articles.
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