LLC or C-Corp: which US company should you form?
Both protect your personal assets from the company's debts. The difference is how they're taxed, how much paperwork they need, and whether investors will put money in.
The short answer
| LLC | C-Corp | |
|---|---|---|
| Federal income tax | Usually none at company level: profit flows to the owners | 21% at company level, then dividends taxed again |
| Yearly federal filing | Form 5472 + pro forma 1120 (one foreign owner), Form 1065 (several owners) or Schedule C (one US owner) | Form 1120, plus Form 5472 if 25%+ foreign-owned |
| Ownership | Membership interests, flexible split | Shares, common and preferred |
| Venture investors | Rarely invest | Expect a Delaware C-Corp |
| Stock options for staff | Awkward | Standard |
| Usual state | Wyoming, Delaware, New Mexico | Delaware |
Choose an LLC if
- you run a service, agency, e-commerce or SaaS business and plan to keep the profit;
- you don't plan to raise venture money in the next couple of years;
- you want the simplest yearly paperwork.
For a non-US owner with no US office or staff, a single-member LLC often owes no US federal income tax at all, though it still files Form 5472 every year. Your home country may tax the profit, so check there too.
Choose a C-Corp if
- you plan to raise money from US angels or funds, or apply to an accelerator;
- you want to give employees stock options;
- you plan to reinvest profit in the business rather than take it out.
A C-Corp pays tax on its own profit. Dividends paid to a non-US shareholder usually have US tax withheld, often reduced by a tax treaty.
Can you switch later?
Yes. An LLC can convert to a corporation, and an LLC can also elect to be taxed as a corporation without converting. It costs more than choosing right at the start, so if fundraising is likely, start with the C-Corp.