Compare structures
LLC or C corporation?.
- LLC: profits taxed once
- C corp: 21% corporate tax
- C corp: can sell stock
Side by side
Federal rules, the same in every state.
| Compared | LLC | C corporation |
|---|---|---|
| Who pays tax on profits | The owners, on their own returns | The company pays 21%, then owners pay again on dividends |
| An LLC can choose to be taxed as a corporation instead, by filing Form 8832. | ||
| Yearly IRS return | One owner: part of the owner's own return. Two or more: Form 1065 | Form 1120, even with no income |
| Form 1120 is due by the 15th day of the 4th month after the company's tax year ends. | ||
| With an owner outside the US | One foreign owner: Form 5472 with a pro forma Form 1120, every year | Form 5472 too, if a foreign owner holds 25% or more |
| Missing Form 5472 can cost $25,000. Dividends a C corporation pays to owners abroad are withheld at 30%, unless a tax treaty lowers it. | ||
| Who owns it | Members: people, companies or foreign entities, any number | Shareholders, through stock it can sell to investors and offer to employees |
| Start your LLC | Start your C corporation | |
Yearly state fees and filings depend on the state you choose. Every state's fees · Delaware corporations, for startups
The same for both
- Your personal assets are protected from the company's debts and lawsuits in most cases.
- Owners can live outside the US: the IRS adds a yearly form for foreign owners (above), not a ban.
- Neither can be an S corporation if any owner is a nonresident alien, a company or a partnership.
- From abroad, the EIN is applied for by phone, fax or mail.
Which one fits you
Our view, from the facts above.
An LLC
Freelancers, agencies, online shops and service businesses that pay their profits out to the owners. Less paperwork, and profits are taxed once.
A C corporation
Startups planning to raise money from investors or give shares to a team. Investors usually expect a Delaware C corporation.
Start your C corporationMore about C corporationsDelaware corporations
Questions people ask
Which is better for a founder outside the US?
Usually an LLC, unless you plan to raise money from investors. An LLC is simpler to run and its profits are taxed once; a C corporation suits startups that will sell shares. Not sure? Ask us and we'll talk it through.
What is double taxation?
A C corporation pays tax on its profits, at 21%, and its owners pay tax again on the dividends they receive, which the company can't deduct. An LLC's profits are taxed once, on its owners' returns, unless it chooses corporate tax.
Does a C corporation file a tax return if it made no money?
Yes. Every domestic corporation files Form 1120 each year, whether or not it has taxable income.
Can an LLC be taxed like a corporation?
Yes. An LLC can file Form 8832 to be taxed as a corporation instead of its default treatment.
Do investors need a C corporation?
Most venture investors expect one, usually in Delaware, because they buy shares. For a business funded by its owners, an LLC is usually simpler.