How do C corp founders get paid?
Most venture-backed med device companies are C corps. Here’s how founders get money out, and how each one is taxed.
The short version
Salary: deductible to the company, W-2 wages to you. No required minimum.
Dividends: not deductible, so they’re taxed at the company and again to you.
Rent or royalties: for property or IP you own personally and license to the company, at market rate.
Shareholder loan: not taxed if it’s a real loan, with a signed note, interest, and repayments.
Loan repayment: not taxed, up to what you lent the company.
Selling your shares: capital gain at exit. QSBS may exclude much of it, if your records hold up.
Don’t: pay yourself as a contractor for your own work. It gets reclassified as wages, with penalties.
Questions
How do C corp founders pay themselves?+
Usually through salary on payroll. Later, through dividends, loan repayments, and eventually selling shares.
Can a C corp founder be paid as a contractor?+
Not for their own work in the business. The IRS treats that as employee work and reclassifies it as wages.
What is QSBS?+
Qualified small business stock. When you sell shares in a qualifying C corp, much of the gain may be excluded from tax.
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