LLC or C corporation?
The textbook answer is about double taxation. For a founder outside the United States the practical answer is usually simpler: are you raising from US venture investors, or not? Almost everything else follows from that.
Side by side
Verified July 28, 2026
| LLC | C corporation | |
|---|---|---|
| Federal tax on the entityThe 21% rate comes from section 11(b) of the Internal Revenue Code, as amended by the 2017 Act. | Generally none — income passes through to the owners | 21% flat federal rate on taxable income |
| Tax when profits are distributedDividends paid to a foreign person are generally subject to 30% US withholding unless a treaty reduces it. | No second layer at the entity level | A second layer on dividends — the classic double taxation |
| Annual federal filing | Form 5472 with a pro-forma 1120 for a foreign-owned single-member LLC | Form 1120, the corporation's own return |
| US venture investorsThis is the single most common reason to choose a C corp. | Generally will not invest in an LLC | Expected, usually Delaware |
| Issuing equity to employees | Awkward — membership interests do not map onto standard option plans | Straightforward, with well-established option plan mechanics |
| Personal US filing exposure for the ownerA genuine practical advantage for some non-US founders — take advice on it. | Pass-through treatment can create a personal US filing question | The corporation files; the owner generally does not by reason of ownership alone |
| Cost and admin | Lower | Higher — corporate formalities, minutes, its own return |
| Typical fit | Bootstrapped software, agencies, e-commerce, consulting | Venture-track startups and companies planning to issue equity widely |
Which one fits you
Choose LLC if
You are bootstrapping — software, services, e-commerce, consulting — and have no plan to raise from US venture funds or issue stock options broadly. The LLC is cheaper to run, simpler to maintain, and avoids a second layer of tax on distributions. For the large majority of non-US founders we work with, this is the right answer, and you can convert later if a financing genuinely materialises.
Choose C corporation if
You intend to raise from US venture investors, or you need to issue stock options to a team. US funds generally cannot or will not invest in an LLC, and option plans are built around corporate stock. There is also a narrower case worth taking advice on: because the corporation files its own return, C corp ownership can sit more cleanly for some non-US owners than pass-through treatment does.
Double taxation is real but often mis-weighted
A C corporation pays 21% federal tax on its taxable income, and distributions to shareholders are taxed again — for a foreign shareholder, generally through 30% US withholding on dividends unless a treaty reduces it. That is a genuine cost. It bites when you actually distribute profits. A founder reinvesting everything into growth for several years, which is the venture-backed pattern, feels it much less than the arithmetic suggests, which is part of why the structure survives despite the headline.
The pass-through side has its own complication
An LLC's income passes through to its owners, and for a non-US owner that raises questions about whether the income is effectively connected with a US trade or business and whether a personal US filing follows. The answer depends on facts we cannot see. It is not automatically bad — most of our clients are perfectly well served by an LLC — but 'no entity-level tax' is not the same as 'no US tax question', and anyone presenting it that way is skipping the part that needs an accountant.
Investors decide this more often than tax does
If you are raising from US venture funds, the conversation is short: they expect a Delaware C corporation, their documents assume it, and many funds have structural reasons they cannot hold LLC interests. If you are not raising, you are choosing between a cheaper, simpler structure and a more expensive one whose main advantages you will not use. Converting an LLC to a corporation later is a well-trodden path, and doing it when a term sheet exists is cheaper than paying corporate overhead for years in anticipation.
What this page does not cover
This is a structural comparison, not tax advice, and entity choice is one of the few decisions where getting it wrong is expensive to reverse. Your position depends on where you are resident, what the business does, whether a treaty applies, and where your customers are. RazorFile files companies; we are not accountants or a law firm. For anything beyond the straightforward bootstrapped case, this is worth an hour of paid advice.
Common questions
Is an LLC or a C corp better for a non-US founder?
For most bootstrapped founders, an LLC: cheaper, simpler, and no second layer of tax on distributions. For anyone raising from US venture funds, a Delaware C corporation, because the funds generally require it. The tax comparison matters less than that question for most people.
What is double taxation exactly?
The corporation pays 21% federal tax on its taxable income, and then shareholders are taxed again when profits are distributed as dividends — for a foreign shareholder, generally through 30% US withholding unless a tax treaty reduces the rate. An LLC's income is not taxed at the entity level in the same way.
Can I start as an LLC and convert to a C corp later?
Yes, and it is common. Founders typically form cheaply, then convert when a financing is actually on the table and investors' counsel is directing the structure. Paying corporate overhead for years in anticipation of a round that has not happened is the more expensive error.
Does a C corp mean I avoid personal US filings?
It can simplify the picture, because the corporation files its own return and ownership alone does not generally create a personal filing obligation for you. Whether that helps in your specific case is exactly the kind of question to put to an accountant rather than to a formation service.
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RazorFile files companies. We are not a law firm or tax advisor, and nothing on this page is legal or tax advice.