LLC vs Corporation: Which Fits a Non-US Founder?
An LLC and a corporation both limit your personal liability, so the choice between them is mostly about tax, investors and paperwork. For a founder who lives outside the United States, a few of those differences are sharper than they are for a US resident. This guide sets them out so you can decide with your adviser. It is general information, not legal or tax advice.
Start Formation in United States →The short answer
If you run a small business yourself and expect to fund it from revenue, an LLC is usually the simpler and lighter structure. If you plan to raise venture capital or issue shares to many people, a corporation is usually what investors expect. Many founders start with one and move to the other later, so the first choice is not permanent.
What they have in common
- Owners are generally not personally liable for the company's debts when it is run as a separate business
- Both are formed by a filing with a state and both need a registered agent there
- Both can be owned by people who live outside the US
- Both need an EIN and both must keep their own records and bank account separate from yours
How each is taxed
An LLC is a flexible vehicle. A single-member LLC owned by a non-US person is generally disregarded for federal purposes and a multi-member LLC is generally a partnership, so profits pass through to the owners. The LLC can also elect to be taxed as a corporation.
A corporation (a C corporation) is taxed as its own entity, and when it pays dividends to shareholders, that income can be taxed again. For foreign shareholders, dividends from a US corporation are generally subject to US withholding tax, at a rate that depends on any tax treaty between the US and your country.
Your home country has its own rules on both structures, and they can change which one is cheaper overall. This is the main reason to take advice before choosing.
What a non-US owner must file
- A foreign-owned single-member LLC generally files Form 5472 with a pro forma Form 1120 each year, even with no income
- A US corporation that is at least twenty-five percent foreign-owned also files Form 5472 for its reportable transactions
- An S corporation is not available if a shareholder is a non-resident alien, so it is not an option for most non-US founders
- Exact obligations depend on income, activity and ownership, so confirm them with a tax adviser
Investors and shares
Venture investors and many lawyers are set up to invest in a corporation, usually a Delaware one, because it can issue classes of stock and standard instruments. An LLC can raise money too, but it usually needs a customised operating agreement and some investors will ask you to convert.
If you do not expect outside investment, that advantage matters less.
Paperwork and control
- An LLC is governed by an operating agreement you write, with few required formalities
- A corporation has bylaws, a board, officers and shareholder meetings, with minutes kept
- Ownership in an LLC is set by the agreement, while a corporation issues stock certificates or records
- Both can be dissolved if the state's annual requirements are ignored
Questions that decide it
- Will you raise outside investment, and from whom?
- Do you want profits to pass through to you, or to keep them inside the company?
- How do your home country's tax rules treat each structure?
- How much administration are you willing to keep up?
Choosing with CORPYO
CORPYO forms US LLCs remotely, in Wyoming and Delaware, and can obtain the EIN and act as the registered agent. If you are weighing a corporation, or an election to be taxed as one, take advice first. This page is general information, not legal or tax advice.
How to decide between an LLC and a corporation
- 1Write down whether you expect to raise outside investment
- 2Check how your home country taxes each structure
- 3Ask a tax adviser about US withholding and filing duties for a foreign owner
- 4Compare the yearly administration you are willing to keep up
- 5Choose the structure, then the state
- 6Form it and apply for the EIN
Frequently Asked Questions
Which is easier to run, an LLC or a corporation?
An LLC. It has fewer required formalities. A corporation needs bylaws, officers, meetings and minutes.
Can a non-US resident own a US corporation?
Yes. There is no residency requirement, although a foreign shareholder cannot hold shares in an S corporation.
Do investors prefer a corporation?
Venture investors usually do, and most often a Delaware corporation. If you do not plan outside investment, it matters less.
Can I change from an LLC to a corporation later?
Yes. Many founders start with an LLC and convert or elect corporate taxation when they need to. Take tax advice before doing so.
Is one structure safer for my personal assets?
Both limit personal liability when the company is run as a separate business. Mixing personal and company money can weaken the protection in either.
Do I still file US forms if the company earned nothing?
A foreign-owned single-member LLC usually files Form 5472 with a pro forma Form 1120, and a foreign-owned corporation may also have a filing. Confirm with a tax adviser.
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