The one question that decides it
Will US institutional investors own part of this company?
If yes, you're raising from US VCs or accelerators like Y Combinator, form a Delaware C-Corporation. Their term sheets, stock option plans and legal machinery all assume it, and swimming against that current costs more than any tax difference saves.
If no, you're building an agency, SaaS, e-commerce or consulting business that you own and profit from, an LLC is almost always the better vehicle: one layer of tax, minimal formality, cheaper to run.
How an LLC works for you
- Pass-through by default: a single-member LLC is disregarded for US tax; profits flow to you and are taxed once (for a non-US owner, typically only in your home country when work happens from outside the US, see the full tax guide).
- Light formalities: no board minutes, no mandatory officers, no annual shareholder meetings.
- Full liability protection: your personal assets are shielded the same way a corporation shields shareholders.
- One limitation to know: foreign owners cannot elect S-corporation status, irrelevant for most, but it closes one US tax-optimisation door that US-resident owners use.
How a C-Corp works, and who it's for
- Separate taxpayer: the corporation pays US federal corporate tax at 21% on its profits; dividends to you are taxed again (with treaty relief capping US dividend withholding for non-US residents, and non-US tax applying with credit mechanics). That's the famous "double taxation".
- Built for equity: preferred stock, ESOP pools, convertible notes, SAFEs, the entire venture stack assumes a Delaware C-Corp.
- Real formalities: board, bylaws, stock ledger, annual franchise tax (Delaware minimum $175-$400 by method, more as you scale, plus registered agent).
- Reinvestment logic: startups that reinvest everything and pay no dividends don't feel double taxation day-to-day, the model works because exits happen via stock sales, not dividend streams.
Side-by-side comparison
| LLC (Wyoming) | C-Corp (Delaware) | |
|---|---|---|
| Best for | Owner-operated, profit-taking businesses | VC-backed startups issuing equity |
| US tax layers | One (pass-through) | Two (21% corporate + dividend tax) |
| Investor readiness | Poor, VCs rarely invest in LLCs | The industry standard |
| Formalities | Minimal | Board, bylaws, minutes, ledger |
| Annual state cost | $60 (Wyoming) | $175+ franchise tax (Delaware), rises with shares/assets |
| Key IRS filings (foreign-owned) | 5472 + pro-forma 1120 | 1120 (+ 5472 where applicable) |
Three myths that push founders the wrong way
- "C-Corp looks more serious to clients." Clients see your product, invoices and bank account, none of which reveal entity type. Enterprise procurement asks for a W-9/W-8 and insurance, not your incorporation flavour.
- "LLC can't have partners." Multi-member LLCs are fine (they file a partnership return, Form 1065, instead of being disregarded). What LLCs are bad at is venture-style preferred equity.
- "I might raise someday, so C-Corp now." "Someday" costs you double taxation and corporate formalities today. Convert when the raise is real (see below).
Can you switch later?
Yes. LLC-to-C-Corp conversion is a well-trodden path, Delaware even has a statutory conversion process, and it's routinely done in the weeks before a priced round or accelerator batch. The reverse journey (C-Corp back to LLC) is uglier. Which is exactly why the default advice is: start with the LLC unless institutional money is already on the table.
