If your project aims to raise investment from American funds or to become a high-growth startup, you will probably need a Delaware C-Corporation rather than an LLC. This guide explains what a C-Corp is, when you need one and what it means for a Spanish founder.
What is a C-Corporation?
A C-Corp is a company with full legal personality, separate from its shareholders, that is taxed on its own profits at the 21% federal rate. It is the standard structure for large American companies and for virtually every startup that is publicly listed or receives venture capital investment.
Why investors require a Delaware C-Corp
Venture capital funds and accelerators such as Y Combinator almost always require a Delaware C-Corp. The reason is practical: it allows you to issue different classes of shares (preferred for investors, common for founders), makes stock option plans easier and relies on the most robust body of corporate case law in the world. It is the language investors understand.
The C-Corp’s double taxation
A C-Corp pays 21% on its profits, and when it distributes dividends, those dividends are taxed again in the hands of the shareholder. That sounds bad, but a startup that reinvests everything in growth does not distribute dividends for years: profits accumulate and are reinvested, taxed only at 21%. Double taxation only bites when there is a distribution.
💡 At Aiden Startup we help you set up the best structure for your project, with advice in Spanish included in every plan.
C-Corp vs LLC: which to choose
| Factor | C-Corp | LLC |
|---|---|---|
| VC investment | Standard | Almost never compatible |
| Stock options | Simple | Complex |
| Taxation | 21% + dividends | Pass-through |
| Complexity | High | Low |
| Ideal for | Startups raising investment | Service businesses/SaaS |
Implications for the Spanish founder
As a founder resident in Spain, your shareholding in the C-Corp and the gains you obtain from it (when selling shares or receiving dividends) are taxed under your Spanish personal income tax (IRPF), and you will probably need to report the shareholding on Modelo 720. The structure is American, but your personal taxation remains Spanish. It is worth planning this carefully, especially with a view to a future sale of shares.
When do you NOT need a C-Corp?
If you are not going to seek VC investment, a C-Corp is unnecessary complexity and cost. For freelancers, consultants and bootstrapped SaaS businesses, an LLC is more efficient. A C-Corp makes sense when outside investment is a real part of your plan, not as a default structure.
🚀 At Aiden Startup we incorporate your company in the UK or Delaware in 72 hours, with a registered address, bank account and Spanish-speaking adviser included. See plans →
Frequently asked questions
When you are going to seek American venture capital investment, want to issue stock options or join accelerators such as Y Combinator. For businesses without outside investment, an LLC is more efficient.
Not so much for startups that reinvest. Profits accumulate taxed only at the 21% federal rate; the second layer only applies when dividends are distributed, something growing startups do not usually do.
Yes. It is a common path: you start with an LLC and convert to a Delaware C-Corp through a regulated process when a fund is about to invest.
Your shareholding and gains (dividends or sale of shares) are taxed under your personal income tax (IRPF) in Spain, and you will probably need to report the shareholding on Modelo 720.
Photo by Dylan Gillis on Unsplash
