You are ready to start a US company, and the first form asks you to pick an entity type. LLC or Inc? A friend says LLCs are simpler. A startup blog says investors only fund Delaware corporations. And if you live outside the United States, you are not sure which rules even apply to you.
This guide compares inc vs llc in plain language: how each is owned, how each is taxed, what each costs to keep running, and which situations favor one over the other. It is written for US founders and international entrepreneurs, including non-residents who want to form a US company remotely.
An LLC usually suits small businesses, freelancers, agencies, and eCommerce sellers who want simple management and pass-through taxation. An Inc (a corporation) usually suits founders who plan to raise venture capital, issue stock options, or eventually go public. Neither is automatically better. The right choice depends on your funding plans, ownership, tax situation, and where you live.
What Is the Difference Between an LLC and an Inc?
Both are legal entities created under state law, and both can separate the business’s liabilities from the owners’ personal assets when the business is run properly. The biggest differences are in ownership structure, tax treatment, and formality.
- LLC (limited liability company). Owners are called members. The IRS notes that most states do not restrict who can own an LLC, and there is no maximum number of members. Management rules live in an operating agreement you write.
- Inc (corporation). Owners hold shares of stock. A corporation has shareholders, a board of directors, and officers. It follows more formal rules, such as bylaws, board meetings, and recorded resolutions.
“Inc” is short for incorporated. “Corp” means the same thing. When people compare an LLC vs Inc, they usually mean an LLC versus a C corporation.
Inc vs LLC at a Glance
| Factor | LLC | Inc (C corporation) |
|---|---|---|
| Owners | Members | Shareholders |
| Default federal tax treatment | Single-member: disregarded entity. Multi-member: partnership | Taxed as a separate entity on its own profits |
| Double taxation | Not by default | Yes, profits taxed at corporate level, then dividends taxed to shareholders |
| Can elect a different tax treatment | Yes, can elect to be taxed as a corporation or S corporation | Can elect S corporation status if eligible |
| Management | Flexible, set in operating agreement | Board of directors and officers |
| Paperwork and formalities | Lighter | Heavier: bylaws, board minutes, stock records |
| Raising venture capital | Harder; many investors avoid LLCs | Standard structure for VC funding |
| Stock options for employees | Possible through profits interests, but less common | Standard and widely understood |
| Foreign owners | Allowed | Allowed |
How Is an LLC Taxed?
By default, an LLC does not pay federal income tax as an entity. According to the IRS, a domestic LLC with at least two members is treated as a partnership, and a single-member LLC is treated as a disregarded entity unless it elects otherwise.
In practice, profits pass through to the owners, who report them on their own returns. An LLC can file IRS Form 8832 to be taxed as a corporation instead, and an eligible LLC can then elect S corporation status. That flexibility is one of the main reasons small businesses choose LLCs.
For foreign owners, pass-through does not mean no US tax. Whether US tax applies depends on whether the income is connected to a US trade or business. A foreign-owned single-member LLC also has its own reporting duties, including Form 5472 with a pro forma Form 1120 in many cases, even in years with no income.
How Is a Corporation Taxed?
A C corporation pays federal income tax on its own profits at the federal corporate rate, currently a flat 21 percent. If it then pays dividends, shareholders may owe tax on those dividends too. This is what people mean by double taxation.
Corporations can keep profits inside the company rather than distributing them, which some growing businesses prefer when reinvesting. State corporate taxes may also apply, depending on where the company is formed and where it does business.
What about S corporations? An S corporation is not a separate entity type. It is a tax election. IRS rules limit S corporations to 100 shareholders and one class of stock, and they cannot have nonresident alien shareholders. That rules S corporation status out for most non-US founders.
Which Should Non-US Founders Choose?
For most non-US founders running a service business, online store, agency, or freelance operation, an LLC is the more common starting point. It has lighter paperwork, flexible management, and no corporate-level tax by default.
A C corporation often makes more sense for non-US founders who plan to raise money from US investors, join an accelerator, or issue equity to a team. Many US venture investors expect a Delaware C corporation.
| Situation | Structure often considered |
|---|---|
| Solo freelancer or consultant selling to US clients | LLC |
| Amazon, Shopify, or other eCommerce store | LLC |
| Agency with a few partners | LLC (multi-member) |
| Startup planning to raise venture capital | C corporation, often in Delaware |
| Company planning employee stock options | C corporation |
| Founder wanting profits kept in the company for reinvestment | Often a C corporation, or an LLC taxed as one |
These are patterns, not rules. Your home country’s tax treatment of a US LLC versus a US corporation can change the answer significantly. Speak with a tax professional in both the US and your country of residence before you decide.
Illustrative scenario: Hamid runs a web design agency from Lahore with one partner. They bill US clients and want simple bookkeeping. A two-member LLC fits their situation well. Their friend Mariam is building a SaaS product and is talking to US angel investors. Those investors ask for a Delaware C corporation, so Mariam forms one instead.
What Does Each Cost to Form and Maintain?
Costs depend heavily on the state. Every state charges a formation fee, and most charge a recurring annual report fee or tax. Here is what to budget for with either structure:
- State formation fee. Paid once to file Articles of Organization (LLC) or Articles of Incorporation (Inc).
- Registered agent. Required for both, in every state where the company is registered.
- Annual report or franchise tax. Recurring and state-specific. Delaware, for example, now charges LLCs a flat $400 annual tax starting with the 2026 tax year, while corporations pay a franchise tax calculated differently.
- Tax preparation. Corporations typically file their own federal return every year. A foreign-owned single-member LLC often files Form 5472 with a pro forma Form 1120.
- Legal and accounting. Corporations with investors usually need more legal work: stock issuances, board consents, and cap table management.
In general, corporations cost more to run because of their formal requirements and separate tax filings. Check your chosen state’s current fee schedule before budgeting, since fees change.
Can You Switch From an LLC to a Corporation Later?
Yes. Many founders start as an LLC and convert to a corporation when they raise funding. Most states allow a statutory conversion, and some founders instead form a new corporation and transfer the business into it.
Converting takes time and costs money, and it can have tax consequences. If you are fairly sure you will raise venture capital soon, forming a corporation from the start may save work later. If you are not sure, an LLC keeps things simple while you find out.
Common Mistakes When Choosing Between an LLC and an Inc
Picking a C corporation just because it sounds bigger. An Inc does not look more credible to most customers, and it brings more paperwork and separate tax filings.
Choosing an LLC when investors are already lined up. If term sheets are coming, ask what structure the investors require first.
Assuming an LLC means no US tax. Tax depends on your activity, residency, and elections. Foreign-owned LLCs have filing duties regardless of profit.
Planning an S corporation as a non-resident. Nonresident aliens cannot be S corporation shareholders.
Ignoring your home country’s rules. How your country taxes income from a US LLC versus dividends from a US corporation can outweigh the US differences.
Skipping the governing documents. An LLC needs an operating agreement. A corporation needs bylaws and stock records. Banks and investors will ask.
How to Form Either Structure
- Decide on structure with your funding plans and tax advice in mind.
- Choose a state. Many small businesses form where they operate or in a low-cost state, while venture-backed startups often choose Delaware.
- Appoint a registered agent with a physical address in that state.
- File formation documents with the state: Articles of Organization for an LLC or Articles of Incorporation for a corporation.
- Prepare governing documents: an operating agreement or bylaws plus initial stock issuance.
- Get an EIN from the IRS.
- Set up banking and compliance calendars for annual reports, taxes, and renewals.
If an LLC fits your plans, Jorofy’s LLC formation service handles the state filing and can add the EIN application. Jorofy also works with international founders on registered agent services, annual reports, and US business banking support.
Making the Call
The inc vs llc question usually comes down to one thing: whether you plan to raise outside investment. If you are building a service business, an agency, or an online store, an LLC gives you flexibility with less paperwork. If US venture investors are part of the plan, a C corporation is usually what they expect. For non-US founders, S corporation status is off the table, and home-country tax rules matter as much as US ones.
Before you file, talk to a tax professional who understands both countries, then choose the structure and state that match your goals. When you are ready to set up an LLC, Jorofy can take care of the filing and the steps that come after it.
FAQs
Is an LLC or Inc better for a small business?
For most small businesses, an LLC is the simpler option. It has lighter paperwork, flexible management, and pass-through taxation by default. An Inc tends to fit businesses that plan to raise venture capital or issue stock options. Neither is better in every case, so decide based on your funding plans, ownership, and tax situation.
Can a non-US resident form an LLC or a corporation in the US?
Yes, generally. US states allow non-residents to own both LLCs and corporations, and the IRS notes that most states do not restrict LLC ownership. Non-residents can form either one remotely through a registered agent. The main limitation is S corporation status: nonresident aliens cannot be S corporation shareholders, so that tax election is not available to them.
Do investors prefer an Inc over an LLC?
Most US venture capital investors prefer a C corporation, often formed in Delaware. Corporate stock, preferred shares, and option pools are standard tools they know well. Some investors cannot or will not invest in LLCs for tax reasons. If you expect venture funding, ask potential investors which structure they require before forming your company.
Does an LLC pay less tax than a corporation?
Not automatically. An LLC avoids corporate-level tax by default, but its owners pay tax on the profits based on their own situation. A C corporation pays the 21 percent federal corporate rate, and shareholders may pay tax again on dividends. Which costs less depends on your income, distributions, residency, and home-country rules.
What is double taxation?
Double taxation happens when a C corporation pays tax on its profits and then shareholders pay tax again when those profits are distributed as dividends. LLCs avoid this by default because profits pass through to the owners. Corporations that reinvest profits instead of paying dividends can delay the second layer of tax.