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What is C Corporation?
A C Corporation (C-Corp) is the standard form of corporation in the US, taxed separately from its owners, offering unlimited investors, multiple share classes, and preferred by venture capital investors.
Why Delaware C-Corp is the Venture Standard
Delaware C-Corps can issue multiple classes of stock with different economic and voting rights, a feature that is essential for venture capital financing. The Delaware Court of Chancery has developed over a century of corporate case law providing clear, predictable rulings on complex equity matters: something that founders and investors value enormously when structuring sophisticated equity arrangements. Furthermore, most US VC term sheets and legal documents are specifically drafted for Delaware C-Corp structures, making legal due diligence faster and cheaper when a company is already incorporated in Delaware.
Advantages and Disadvantages
C corporations offer key advantages: unlimited shareholders (no S-corp 100-shareholder cap), multiple classes of stock (essential for VC-style preferred stock financings), foreign-investor participation, and broad institutional investor acceptability. Disadvantages include double taxation (corporate-level tax plus shareholder-level tax on dividends), and inability to pass losses through to shareholders (limiting tax benefits in early-stage loss years).
When to Choose C Corporation
For venture-backed startups, the C corporation is essentially the default choice: virtually all institutional VC investment expects this structure. Founders sometimes operate as LLCs (or S corporations) in early stages to pass losses through to themselves, then convert to C-corp before raising institutional capital. The conversion is taxable but typically results in minimal tax due to limited appreciation at that early stage. Delaware C-corporations dominate the US venture ecosystem due to well-developed corporate law and predictable judicial precedent.
Sources. Delaware General Corporation Law (8 Del. C. ch. 1).