What Is a C Corporation?

A C corporation is a separate legal entity owned by shareholders and taxed on its own income, and it is the structure most venture-backed US startups use.

Category: Legal and IP · Reviewed 11 November 2026 · 2 min read

How it works

A C corporation is formed under state law by filing articles or a certificate of incorporation. Owners hold shares of stock. A board of directors oversees the company, and officers run it day to day. The corporation is a separate legal entity, so shareholders are generally not personally liable for its debts.

The name comes from Subchapter C of the US tax code. The corporation pays tax on its own profits. If it later pays dividends, shareholders may owe tax on those as well, which people call double taxation. Whether that matters in practice depends on the company's profits, its plans, and current tax rules, so an accountant should confirm it.

Example

For example, a startup incorporates and issues 8,000,000 shares to its two founders and reserves 2,000,000 for an option pool. Later, an investor buys a new class of preferred stock. This kind of layered share structure is straightforward in a corporation, which is one reason investors know it well.

Why founders care

Many investors and their lawyers prefer C corporations because the share classes, option plans and investment documents are standardized. Delaware is a common state of incorporation for venture-backed companies, partly because its corporate law is well developed. A corporation involves more formalities than an LLC, such as bylaws, board approvals and annual meetings. State fees and taxes differ, and a company often owes them in its home state as well.

Common mistakes

Incorporating without issuing founder stock or documenting who owns what.
Ignoring corporate formalities such as board consents.
Assuming Delaware means no taxes elsewhere.
Confusing a C corporation with an S corporation, which is a tax election with ownership limits.

Frequently asked questions