To round off our big comparison series, after the UK Ltd, the Estonian OÜ and Cyprus, here is the all-American showdown: LLC or corporation? It is the fork where formation portals love to sow confusion, yet for our readers the answer is clearer than in any other comparison. And that is exactly why it pays to know the exceptions precisely.
The difference in one paragraph
The C corporation is a taxpayer in its own right: it pays the federal corporate income tax of 21 percent on its profits (plus state taxes), and when it distributes them, the IRS has withholding tax on dividends to foreigners waiting, 30 percent or the treaty rate. Two layers of tax, real bookkeeping, board formalities. The transparent LLC knows none of that: zero US tax at company level, profits go straight to you, taxed where you live, formalities in pocket size. For the internationally living solo entrepreneur, the contest is settled in the first paragraph: the corporation would voluntarily cost you 21 percent plus tax on distributions, where the LLC passes through zero.
The three honest exceptions
Exception one: institutional capital. US funds and angel syndicates invest in Delaware C corporations, full stop. Preferred shares, option pools, board seats: the entire venture machinery is calibrated to the corporation, and the SaaS article described the planned conversion (the flip). If you are already collecting term sheets today, form a corporation straight away; everyone else bootstraps in the LLC and keeps the fork in view.
Exception two: profits meant to stay in the US. If you reinvest in the US for the long term, a US team, US expansion, large-scale US real estate development, a corporation lets you park profits in the company at 21 percent instead of having them attributed to you at your place of residence. That is a real model for real US substance, and for our readers' location-independent businesses simply the wrong building site.
Exception three: shielding as a feature. Some countries of residence have rules that treat transparent entities unfavourably while rewarding corporations with dividend privileges; Cyprus was the case study. In such set-ups, opacity can be desirable, and this is where an American curiosity comes in: with Form 8832, your LLC can elect to be taxed as a corporation: check-the-box, same company, new tax outfit. Occasionally it is the most elegant tool in the whole box, and at the same time the most dangerous one to use on your own: the election binds you for years, quickly collides with the CFC rules of your country of residence and belongs, without exception, in a consultation, never in a tutorial.
What often gets mixed up
Three clean-ups to finish. The S corporation is not an option for you: it is only open to US persons, foreigners are excluded as shareholders, end of topic. "Inc. sounds more serious" is not a tax argument: your LLC appears with a state brand, clean contracts and in two states even with an Ltd ending, as grown-up as your business deserves. And the corporation as an anonymity upgrade is a myth: privacy depends on the state, not on the legal form.
The decision formula
LLC if you work for yourself and live internationally, which is the core case of this entire website. Corporation if outside capital or long-term profit retention in the US defines your model. An 8832 election if your country of residence rewards opacity, and then only with advice. Three sentences for the last fork, and the comparison series is complete.
Your next step
If the formula points to the LLC, as it does for nine out of ten readers: choose your state, order. If investors, US substance or a country of residence that rewards shielding shape your situation, book a consultation with Sebastian: one hour, held in English, honest feedback, 15-minute guarantee.
Want a consultation?
ZeroTax LLC is a service of Mount Bonnell Advisors in Austin, Texas.
Founder of Mount Bonnell Advisors, Austin, Texas. Has formed corporations, flipped them and unwound them, and recommends them exactly when they are the right call: rarely, but then properly.
Book a consultation with Sebastian (held in English only)