Here's my understanding of the taxes
21% Federal taxes: $2.1M 8.84% California taxes: $0.9M Delaware taxes: <$1K
Amount after taxes: $7M
Assume the founders have 70% of equity ~ $5M
Once distributed to founders
23.8% Federal tax : $1.2M 13.38% California tax: $0.7M
So, founders with 70% equity in a $10M sale, earn just $3M? Rest is mostly taxes? Am I getting this correct, because this sounds ridiculous?
As for the tax situation, more or less you are correct if you just do a basic distribution (assume 50-60% goes to taxes in that method), but you really need to talk to a tax accountant and your legal counsel as usually they try to avoid a basic distribution. There are a number of ways to reduce the tax burden (or have it classified differently), assuming the company isn't going to continue to transact business. If you wanted to leave the company open, rename etc there are some ways to reduce the tax burden further and pay it out over time (after buying out the investors).
I have sold a couple of businesses and the C corp by far was the worst tax situation. But our back of the hand calculation like yours wound up being quite high compared to what we wound up paying because of good tax and legal advice.