In this guide
The Short Answer
If you plan to raise venture capital from US investors, choose a C-Corp. For everything else, an LLC is usually simpler, cheaper, and more flexible.
But the real answer depends on your specific situation — your business model, your investors, your tax residence, and your long-term plans. This guide walks through the key differences so you can make an informed decision.
How They're Taxed
The tax treatment is the most significant difference between the two structures.
LLC Taxation
A single-member LLC is a "disregarded entity" by default — the IRS ignores it for tax purposes, and profits pass through to the owner's personal tax return. A multi-member LLC is treated as a partnership by default, with profits allocated to members according to the operating agreement.
For non-US owners with no US-source income: a single-member LLC typically owes zero US federal income tax. You still must file Form 5472 and a pro-forma 1120 annually.
LLCs can also elect to be taxed as a C-Corp (by filing Form 8832), giving you the flexibility to change later — though the process has tax implications.
C-Corp Taxation
A C-Corp is a separate taxable entity. It pays federal corporate tax at a flat 21% on net profits. When profits are distributed as dividends to shareholders, they're taxed again — this is "double taxation."
For non-US shareholders: dividends from a US C-Corp are subject to a 30% withholding tax, reduced to 5–15% under many tax treaties. The combination of 21% corporate tax plus withholding on dividends makes the C-Corp significantly more expensive from a pure tax perspective.
However, most venture-backed startups don't pay dividends — they reinvest profits in growth. The double taxation issue is therefore theoretical for many early-stage companies.
Fundraising and Investor Expectations
This is where the C-Corp wins decisively for venture-backed companies.
US venture capital firms almost universally require portfolio companies to be C-Corps. This is because C-Corps can issue preferred stock (essential for VC term sheets), most VC legal documents are standardized for C-Corp structures (SAFE, NVCA term sheets), C-Corps have a well-understood governance framework for board seats, liquidation preferences, and protective provisions, and tax-exempt investors (foundations, pension funds) cannot easily invest in pass-through entities like LLCs.
If you raise a SAFE or priced round from a US investor, they will expect a Delaware C-Corp. Converting from an LLC to a C-Corp at fundraising time is possible but adds legal costs ($2,000–10,000), time pressure, and potential tax consequences.
If there's a meaningful probability you'll raise venture capital, start with a C-Corp.
Ownership and Structure
LLCs and C-Corps handle ownership very differently.
LLC Ownership
LLC owners are called "members" and their ownership is defined in the Operating Agreement. LLCs offer maximum flexibility: you can allocate profits and losses differently from ownership percentages, create custom management structures, and have different classes of membership interests.
However, this flexibility can become a liability. Because every LLC Operating Agreement is different, there's no standardized framework for investors, and custom agreements require more legal work.
C-Corp Ownership
C-Corp owners hold stock. The standard structure includes common stock (for founders and employees), preferred stock (for investors), and a clear, well-understood hierarchy of rights. Stock options and equity compensation plans are straightforward.
The standardization of C-Corp governance means lower legal costs for routine corporate actions and easier due diligence for investors.
Compliance and Administration
Both structures have ongoing requirements, but they differ in complexity.
LLC Compliance
Delaware annual franchise tax: $300 Annual report: not required in Delaware (unlike most states) Tax filing: Form 5472 + pro-forma 1120 (for non-US single-member LLCs) Board meetings: not required (no board) Minutes and resolutions: not required by law (but recommended)
LLCs are simpler to maintain, with fewer formal requirements.
C-Corp Compliance
Delaware annual franchise tax: $400+ (calculated based on authorized shares or assumed par value) Annual report: required in Delaware Tax filing: Full Form 1120 (US corporate tax return) Board meetings: annual meeting required Minutes and resolutions: required for major decisions State franchise tax calculation can be complex — the "authorized shares" method can produce surprisingly high tax bills if you have a standard Silicon Valley setup with millions of authorized shares. The "assumed par value capital" method usually produces a lower bill.
C-Corps require more administrative overhead, including board resolutions, proper corporate minutes, and annual meetings.
Conversion: Changing Your Mind Later
You can convert between structures, but it's not free.
LLC to C-Corp: Possible via a statutory conversion or a contribution of LLC interests to a new C-Corp. Legal fees typically run $2,000–10,000. There may be tax consequences depending on the LLC's assets and liabilities. This is common when startups initially form as LLCs and later decide to raise venture capital.
C-Corp to LLC: Technically possible but treated as a corporate liquidation for tax purposes — the C-Corp pays tax on the fair market value of its assets, and shareholders pay tax on the distribution. This is almost never advisable for a going concern.
The asymmetry is important: going from LLC to C-Corp is manageable. Going from C-Corp to LLC is painful. If you're unsure, the LLC gives you more optionality.
Decision Matrix
Choose a Delaware LLC if: you're a solo founder or small team with no immediate VC plans, you primarily serve international clients, you want the simplest and cheapest structure, you're a non-US resident seeking minimal US tax exposure, or you're testing a US entity before committing to a larger presence.
Choose a Delaware C-Corp if: you plan to raise venture capital from US investors, you're joining an accelerator (Y Combinator, Techstars, etc.), you plan to hire US employees with stock options, you're building a company you intend to sell to a US acquirer, or you want the standardized governance framework that investors and acquirers expect.
Still not sure? Start with a conversation. Our team can help you think through the tradeoffs based on your specific business model and goals.
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