LLC vs C-Corp for Non-Resident Founders: Which One to Form from India

If you live outside the US and want a US company, the first real decision is LLC or C-Corp. Most guides answer it for Americans. The answer changes a little when the owner is a non-resident, mostly because of how tax and yearly filings work. This post is for founders in India and other countries.

For the side-by-side table, see our LLC vs C-Corp comparison. Here we focus on what matters when you are the foreign owner.

The quick answer

• Freelancing, consulting, e-commerce, a small online business: an LLC.
• A startup that will raise money from US investors: a Delaware C-Corp.
• Not sure yet: an LLC, and convert later if funding arrives.

How each is taxed when you are a non-resident

LLC

A single-member LLC owned by a non-resident is ignored for US income tax. If the LLC has no US-source business income, it generally owes no US income tax. It still has to tell the IRS about itself every year: Form 5472 attached to a pro forma Form 1120. Details are in our Form 5472 guide. Your home country will usually tax you on what the LLC earns, so the tax outcome depends on that country's rules.

C-Corp

A C-Corp is its own taxpayer. It files Form 1120 and pays US corporate tax on its profit. When it pays you a dividend, the US applies withholding to a foreign owner, 30% by default, which a tax treaty may reduce. Your home country may tax the dividend again. For a business that mainly pays its owner, this is often more tax than an LLC.

Yearly filings compared

Every year costs money in both cases. The C-Corp costs more to keep because the filing is a full corporate return and there are more records to maintain.

Why investors prefer the C-Corp

US investors buy shares, set up option pools for employees and expect standard legal documents. A C-Corp fits that. An LLC can be made to work, but it makes every round slower and more expensive. If you will raise money within a year or two, form the C-Corp first rather than converting later.

What about an S-Corp?

An S-Corp is a tax election, and its shareholders generally must be US citizens or residents. That rules it out for most non-resident founders.

Common mistakes

• Forming a C-Corp for a freelance business. You pay more tax and more compliance for features you will never use.
• Forming an LLC and then promising equity to investors. You will probably have to convert.
• Ignoring the home-country side. The US structure is only half of the tax picture.
• Skipping the yearly filing. Both structures have one, and missing the foreign-owned LLC form carries a heavy penalty.

A simple way to decide

1. Will investors fund this company? Yes, form a C-Corp. No, continue.
2. Will you give out stock options? Yes, consider a C-Corp. No, continue.
3. Otherwise form an LLC.

How we help

We form LLCs, get the EIN, provide the registered agent and prepare the yearly US LLC tax filing. For a Delaware C-Corp for a venture-backed startup, read Delaware C-Corp vs LLC for startups and speak to a startup lawyer. This post is general information, not legal or tax advice.