Guides & research

27 January 2025

Company Formation

LLC vs. C-Corp:
Which US Entity is Right for
Your Business Expansion?

Isidro Helder

CEO & Founder ConnectaVerse B.V.

Expanding your business to the US? The wrong entity choice could cost you time, investors, tax breaks, and your ability to scale. Many founders mistakenly assume an LLC is the American equivalent of a UK Ltd or Pty Ltd, only to realise too late that a C-Corp would have been the smarter choice. This guide will help you avoid those pitfalls and navigate the complexities of company formation in the US.

Did you know that over 86% of venture capital funding in the US goes to C-Corps? And it's no coincidence. For high-growth businesses, the choice between an LLC and a C-Corp can shape everything from fundraising to taxation. Here’s what you need to know before you make your move.

LLCs vs. C-Corps: A Quick Overview

Choosing the right entity for your US business expansion begins with understanding the fundamental differences between LLCs and C-Corps. Each structure offers distinct benefits, challenges, and implications for growth, compliance, and international ownership.

What is an LLC?


A Limited Liability Company (LLC) is a highly flexible business structure designed to shield its owners—referred to as members—from personal liability. It offers pass-through taxation, meaning the company's profits and losses are reported on the individual tax returns of its members, avoiding corporate-level taxation.

LLCs are often the preferred choice for small-scale operations, side projects, or businesses in their early stages that aren’t yet focused on significant growth. Their simplicity and minimal compliance requirements make them an attractive option for founders prioritising ease of management.

Kickstarter, the popular crowdfunding platform, began as an LLC, leveraging its flexible structure during its early days to streamline operations and minimise compliance costs. This setup worked well during its initial growth phase before its eventual shift to a larger corporate framework.

However, LLC formation can pose challenges for international owners. Non-US residents may face complex tax obligations due to pass-through taxation, which incurs filing requirements in both the US and their home country. These complications can make LLCs less appealing for businesses looking to scale globally.

What is a C-Corp?


A C-Corporation (C-Corp), on the other hand, is a more formalised structure built for scalability. Ownership is divided into shares, making it easy to attract investors and issue equity to employees. A C-Corp operates as a separate legal entity, meaning it pays taxes on its own income. This is often referred to as double taxation, since profits are taxed at the corporate level and again when distributed to shareholders as dividends.

C-Corps have become the leading choice for scale-ups, especially those seeking venture capital or institutional investment. This structure’s predictability and standardisation make it ideal for scaling operations and navigating the complexities of international markets. Many household names, such as Google and Apple, are structured as C-Corps, which allowed them to attract significant venture capital funding during their formative years.

The state of Delaware, in particular, is renowned for its C-Corp-friendly framework, making it the jurisdiction of choice for both domestic and international companies. For example, Delaware’s corporate laws provide clarity and consistency in resolving disputes, offering peace of mind to founders and investors alike.

Key Differences Between LLCs and C-Corps

Choosing between an LLC and a C-Corp isn’t just about personal preference; it’s imperative that you understand how each structure aligns with your business goals, operational needs, and future growth. So, let’s break down the five critical distinctions:

1. Ownership and Liability

  • LLC: Flexible and Informal
    An LLC allows for flexible ownership arrangements. Members can be individuals, corporations, or even other LLCs, with no limit on the number of owners. Management is similarly flexible, with fewer formalities required. However, this informality can sometimes create complications, particularly in defining roles and responsibilities.

  • C-Corp: Structured and Scalable
    In a C-Corp, ownership is formalised through shares, separating the roles of shareholders, directors, and officers. This clear delineation of ownership and management makes C-Corps ideal for scalability, particularly when bringing on new investors or partners. Shareholders are shielded from personal liability beyond their investment, offering robust protection.

2. Taxation

  • LLC: Pass-Through Simplicity, but Challenges for International Owners
    LLCs are considered pass-through entities, meaning profits and losses flow directly to the members, who report them on their personal tax returns. While this eliminates corporate-level taxation, it can create complex tax filing requirements for international owners, who may be taxed in both the US and their home country.

  • C-Corp: Double Taxation with Global Advantages
    C-Corps are subject to corporate income tax, and shareholders are taxed again on dividends (commonly known as double taxation). However, C-Corps benefit from US tax treaties, which can simplify the repatriation of profits for international founders. Losses can also be carried forward to offset future profits, a key advantage for growing businesses.

3. Compliance and Reporting

  • LLC: Low Maintenance
    LLCs are relatively straightforward to manage, with fewer ongoing compliance requirements. This makes them appealing to solo founders or small teams prioritising simplicity over structure.

  • C-Corp: Higher Compliance, Greater Credibility
    C-Corps require stricter compliance, including annual reporting, board meetings, and shareholder documentation. While this may seem burdensome, it provides transparency and credibility, especially when dealing with investors or regulators.

4. Fundraising and Investment

  • LLC: Limited Options
    Institutional investors often avoid LLCs due to their pass-through taxation and the legal complexities involved in ownership. LLCs are better suited for self-funded businesses or those relying on personal connections for capital.

  • C-Corp: Investor-Friendly by Design
    The standardised structure of C-Corps makes them the best US entity for foreign businesses, and the default choice for venture capitalists and institutional investors. C-Corps can issue multiple classes of shares and accommodate complex equity agreements, essential for securing significant funding.

5. Employee Equity and Vesting

  • LLC: Limited and Complicated
    While LLCs can offer equity to employees, the process is often cumbersome and less attractive due to tax implications. Employees may also face personal tax obligations for their ownership stake, making equity a less appealing incentive.

  • C-Corp: Standardised and Transparent
    C-Corps excel at offering stock options and equity plans, which are industry standards for attracting and retaining top talent in tech. Clear tax treatment and well-understood mechanisms make C-Corps the preferred structure for issuing equity and managing vesting schedules.

When Should You Choose an LLC or C-Corp?

Ultimately, the decision between an LLC and a C-Corp will depend on your business goals, growth trajectory, and operational needs. Here’s a closer look at when each structure might be the right fit:

When an LLC Makes Sense

  • For Small, Self-Funded Operations
    If your business is a smaller operation or a side project with no immediate plans for significant growth, an LLC offers simplicity and flexibility. Its minimal compliance requirements make it an ideal choice for founders who want to focus on day-to-day operations without the administrative burden of extensive reporting.

  • For Founders Prioritising Simplicity
    LLCs are particularly attractive to entrepreneurs who value operational simplicity. The lack of complex governance structures and pass-through taxation keeps things straightforward, especially for businesses operating domestically or on a smaller scale.
For founders unsure of their long-term growth plans, starting as an LLC and converting to a C-Corp later can be a flexible approach. Many startups begin as LLCs to take advantage of pass-through taxation during their early, self-funded stages, transitioning to a C-Corp when they require venture capital or equity-based hiring incentives.

However, for international businesses, the global compliance challenges of an LLC can complicate matters. Pass-through taxation often triggers multi-jurisdictional tax obligations, which may not align with the needs of companies entering international markets.

When a C-Corp is Ideal

  • For High-Growth, Investor-Backed Businesses
    If your business plans to scale rapidly and attract external funding, a C-Corp is almost always the better option. Its structured governance and ability to issue multiple classes of shares make it highly appealing to venture capitalists and institutional investors.

  • For Companies Offering Equity Incentives
    Hiring and retaining top talent often requires equity incentives. C-Corps provide a clear, standardised framework for issuing stock options, which is widely recognised and trusted across industries. This can be a decisive factor for scaling companies competing for the best talent.

  • For Foreign Businesses Expanding into the US
    International businesses entering the US market benefit significantly from the C-Corp structure. It simplifies profit repatriation, aligns with investor expectations, and provides a stronger foundation for meeting compliance standards. These advantages make the C-Corp the go-to choice for foreign companies planning long-term operations in the US.

Converting Between LLCs and C-Corps


It is relatively straightforward to convert an LLC into a C-Corp, especially if the LLC’s operating agreement anticipates this transition. This process typically involves creating a plan of conversion, drafting corporate bylaws, and filing articles of incorporation. Delaware streamlines this process, making it the go-to jurisdiction for start-ups transitioning from an LLC to a C-Corp to secure investors.

Conversely, converting a C-Corp into an LLC is far less common and can be more complex. It usually involves dissolving the C-Corp and transferring its assets to the newly formed LLC, which can trigger tax liabilities. This conversion might apply in situations where a business shifts from high growth to a smaller, privately owned structure with simpler compliance needs.

Why C-Corps Are the Default for International Businesses

The C-Corp structure has become the preferred choice for high-growth companies expanding into the US. From simplifying cross-border operations to appealing to investors, C-Corps offer a framework that supports scalability and international success.

Tax Treaties and Repatriation


One of the key advantages of a C-Corp for international businesses is its ability to streamline cross-border profit distribution. Unlike LLCs, where pass-through taxation can create complicated and overlapping tax obligations for foreign owners, a C-Corp operates as a separate taxable entity. This separation simplifies profit management and ensures compliance with international tax treaties.

For UK and EU-based founders, tax treaties between the US and their home countries often provide significant relief in the form of reduced withholding tax rates on dividends. This means profits can be repatriated more efficiently, allowing businesses to reinvest globally or return value to shareholders without excessive financial friction. By aligning with global compliance standards, C-Corps provide a stable and predictable platform for managing international operations.

Investor and Legal Advantages


C-Corps are purpose-built to attract investment, making them the overwhelming preference for US investors. Venture capitalists, institutional investors, and even start-up accelerators like Y Combinator expect businesses to operate under this structure. Why? The standardised governance structure of a C-Corp—featuring clearly defined shareholder rights, multiple classes of stock, and streamlined compliance—offers transparency and reduces legal complexities, creating a foundation that investors trust.

For VC-backed companies, C-Corps provide the scalability and structure necessary to meet investor expectations. This includes the ability to issue stock options and manage complex equity agreements, both of which are essential for high-growth businesses.

Delaware stands out as the jurisdiction of choice for C-Corp formation, thanks to its robust and business-friendly corporate laws. With a legal framework designed to support scalability and minimise risks, the state offers the flexibility companies need to attract funding and expand internationally. These factors make it a reliable and strategic home for scale-ups, ensuring confidence for both founders and investors alike.

Practical Steps for Setting Up Your US Entity

Expanding into the US market starts with choosing the right entity and setting it up properly. Below are a few tips to help guide you through the company formation process, avoiding pitfalls and positioning your business for long-term success.

Delaware as a Starting Point


Delaware is the go-to jurisdiction for registering a new company in the US, and for good reason. Its business-friendly laws, predictable legal framework, and well-established reputation make it an attractive option for start-ups, scale-ups, and international businesses alike.

Additionally, Delaware’s specialised Court of Chancery focuses on business law, ensuring legal disputes are resolved quickly and fairly. This combination of efficiency and reliability cements its status as the top choice for C-Corps.

Key Distinction for UK Founders


Unlike filing a company in London, where local director requirements must often be met, Delaware has no such restriction. This allows UK tech founders to retain full control of their business without needing to appoint a local US-based director. Instead, you’ll need to appoint a registered agent (a service available for a modest annual fee), who acts as the official point of contact for legal and compliance matters within the state.

Delaware also provides tax advantages for corporations. For example, businesses that do not operate physically within the state typically avoid paying state corporate income tax, reducing company formation costs. This can be particularly appealing for UK-based SaaS or tech businesses with no nexus (physical presence) in the US.

Case Study


A UK-based AI scale-up expanding into the US chose Delaware to establish its C-Corp. By leveraging Delaware’s lack of physical nexus requirements, the company avoided state income tax while maintaining operational control from its UK headquarters. Appointing a registered agent streamlined their compliance process, ensuring timely handling of important legal notices and filings.

Preparing for Compliance


Once your entity is established, the next step is understanding your compliance obligations. Filing requirements for C-Corps include annual reports, franchise taxes, and corporate governance documentation. Ensuring your company formation documents are complete and accurate is critical to maintaining good standing with state authorities.

For UK tech scale-ups, compliance processes in Delaware are straightforward compared to managing filings in multiple jurisdictions. For instance, while a UK Ltd might require regular filings with Companies House and adherence to UK-specific regulations, a Delaware C-Corp primarily files an annual report and franchise tax return. However, failure to meet these obligations can lead to penalties or even dissolution, so partnering with an experienced entity management provider is essential. Proactive compliance is not just about avoiding unnecessary company formation costs; it’s about building credibility with investors, partners, and regulators.

Delaware’s system also simplifies the process for securing tax credits, particularly for research-intensive businesses. For example, a UK fintech company that incorporates as a Delaware C-Corp may qualify for the US federal R&D tax credit, offering significant savings on operational costs.

Streamlining Operations


Managing compliance, HR, and payroll can feel overwhelming, especially for companies scaling across borders. This is where platforms like the ConnectaVerse become invaluable. By outsourcing key services to local experts, you reduce the risk of company formation mistakes and ensure smooth operations.

Tools designed for global businesses help streamline processes while keeping you focused on growth. From handling tax filings to ensuring state and federal compliance, the right partner can simplify complex tasks and give your team peace of mind.

The Bigger Picture: How Entity Setup Fits Into Global Expansion

Setting up the right entity is just the beginning of your global expansion journey. The structure you choose will influence many other critical aspects of scaling internationally, from hiring talent to protecting intellectual property. Here’s how your entity setup ties into broader expansion strategies:

HR and Payroll: Building Your International Team


Expanding into a new market often means hiring locally to establish a presence. Choosing the right entity type ensures you can onboard employees under a compliant structure that meets local regulations. For instance, a Delaware C-Corp provides the flexibility to handle payroll and benefits across multiple jurisdictions without triggering unnecessary tax liabilities or compliance issues.

For UK tech scale-ups hiring in the US, this can be a game-changer. A well-structured C-Corp not only simplifies payroll setup but also ensures compliance with both US and international labour laws, reducing the risk of fines or misclassification errors.

EoR Integration: Simplifying Employee Management


Scaling quickly often requires hiring talent in markets where your company doesn’t yet have a legal presence. This is where an Employer of Record (EoR) comes into play. An EoR acts as the legal employer for your team while you retain operational control, allowing you to hire internationally without the need to set up a new entity in each location.

By integrating EoR services with a strong entity foundation, like a C-Corp, businesses can streamline their hiring processes. For example, a UK-based tech scale-up using an EoR to manage its growing US sales team can avoid the administrative burden of registering for state-specific payroll taxes while ensuring compliance with local employment laws.

IP Ownership: Protecting Your Most Valuable Assets


For tech companies, intellectual property (IP) is often the backbone of their business. The entity you choose plays a key role in safeguarding and structuring IP ownership. A Delaware C-Corp, for example, offers a clear framework for assigning and protecting IP, ensuring founders retain control while preparing for potential investment rounds.

Consider a UK SaaS company expanding to the US: by structuring its IP ownership under a C-Corp, it can centralise its IP portfolio, simplify licensing agreements, and offer clearer protections during investor due diligence. This not only safeguards valuable assets but also positions the company for seamless scaling across borders.

From Setup to Success: What’s Next for Your Business

Choosing between an LLC and a C-Corp is one of the most important decisions your business will make when expanding into the US. Each structure serves a distinct purpose, and understanding their differences is key to setting your company up for success. To summarise:

  • LLCs are an excellent choice for small operations or short-term ventures, offering flexibility and simplicity.
  • C-Corps, on the other hand, are the go-to for high-growth, scalable businesses. They provide a strong foundation for attracting investors, issuing equity, and meeting corporate compliance requirements in the US market.
The right structure is more than just a legal formality; it’s a strategic move that impacts your ability to scale, remain compliant, and thrive in a competitive global market.

Expanding your business to the US? The ConnectaVerse is here to guide you in choosing the right entity and simplifying your journey. Get in touch for your free consultation today!

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