What is C Corporation?

How it works

A C corporation is the default form of US corporation. "C" refers to Subchapter C of the Internal Revenue Code, the chapter governing default corporate taxation. Every state-formed corporation is a C-corp unless it affirmatively elects S-corp status — and many can't, because they fail S-eligibility.

The defining feature is double taxation:

1. The corporation pays 21% federal corporate tax on its taxable income (per PwC US Corporate Taxes-on-Corporate-Income).
2. The corporation distributes after-tax profits as dividends.
3. Shareholders pay tax on those dividends — at qualified-dividend rates (0%, 15%, or 20% federal) for US individuals; at 30% withholding (often reduced by treaty to 5%, 10%, or 15%) for non-residents.

State CIT layers on top — typically 1% to 10% (per PwC US), with some states (Texas, Wyoming, South Dakota) having no CIT. A new corporate alternative minimum tax (CAMT) at 15% on book income applies to corporations with average annual financial-statement income over $1 billion (per PwC US).

The corporation files Form 1120 by 15 April (calendar-year filers), with extensions available via Form 7004.

Why non-residents often pick a C-corp over an LLC

For a non-resident, the trade-off vs. a US LLC tilts on three factors:

1. No personal US filing. A non-resident shareholder of a C-corp doesn't file Form 1040-NR for the corporation's profits — the corporation files its own 1120, and the shareholder only deals with US tax on dividends actually paid (via FDAP withholding mechanics on W-8BEN).
2. Predictable withholding. Dividend payments to the foreign shareholder are subject to 30% withholding at source (treaty-reduced), straight onto a 1042-S. Clean, mechanical, no ambiguity.
3. VC and M&A standard. Almost every term sheet from a US VC fund requires Delaware C-corp status. International acquirers expect it.

The cost: 21% federal + state CIT on every dollar of profit, plus dividend withholding when distributed. For a profitable, fully-taxed business, that's usually 30%+ effective compared to a 0% or low-rate flow-through to a non-resident through an LLC structure.

QSBS and other C-corp-only goodies

C-corp shareholders qualify for Qualified Small Business Stock (QSBS) treatment under §1202 — a meaningful federal capital-gains exclusion on stock held 5+ years, subject to per-issuer caps. QSBS is a US-shareholder benefit; non-residents don't access it unless they become US tax residents during the holding period.

Other C-corp-only items:

• Net operating losses (NOLs) carry forward indefinitely (with annual usage limits).
• R&D credit (§41).
• §83(b) elections on restricted stock with much cleaner mechanics than LLC profits-interests.

Examples

• YC startup with $2M seed round. Delaware C-corp from day one. Pays 21% federal + state CIT on net income (when profitable), retains earnings to fund growth. Founders' shares qualify for QSBS treatment if held 5+ years.
• Brazilian founder's US e-commerce company. Forms a Delaware C-corp because his business has US warehousing, US employees, and a US trade or business that would otherwise produce ECI under an LLC structure. C-corp gives clean separation: corporation pays federal + state CIT on net; dividends to the founder are subject to 30% WHT at distribution. His personal US filing is zero.

Common mistakes

• Picking C-corp by default for a one-person SaaS. Without a fundraising plan or VC-required structure, the double-tax math almost always loses to a single-member LLC.
• Ignoring state CIT. Federal 21% headline tax masks the additional state layer — California 8.84%, New York 6.5%, Massachusetts 8% — non-trivial.
• Holding C-corp stock without considering QSBS. Non-US founders who later become US-resident can plan their holding period around QSBS — but only if the corporation, the holding period, and the shareholder all qualify under §1202.
• Treating dividends as the only distribution path. Buybacks (now subject to a 1% excise tax for public companies under the IRA), liquidating distributions, and stock-redemption mechanics all have different US tax outcomes from straight dividends.