The structure you choose shapes your taxes, your paperwork, and your ability to raise money. For most non-resident founders the real contest is LLC versus C-corp, with the sole proprietorship serving mainly as the baseline of having no protection at all. Pick wrong and you either overpay in tax and admin or close the door on investors.
This guide explains all three plainly, compares how they are taxed, and shows which fits ecommerce, freelancers, and funded startups. If you have already decided on an LLC, jump to the formation guide; if you are weighing states, see Wyoming vs Delaware. Treat this as education, not legal or tax advice.
In this guide
The three structures at a glance
| Structure | Separate legal entity? | Default taxation | Best for |
|---|---|---|---|
| Sole proprietorship | No | Personal income | Not recommended; no protection |
| LLC | Yes | Pass-through | Freelancers, ecommerce, bootstrapped SaaS |
| C-Corp | Yes | Corporate (21%) plus dividends | VC-backed startups |
Sole proprietorship explained
A sole proprietorship is simply you trading as yourself, with no separate legal entity. There is nothing to form and nothing standing between your business and your personal assets, so if the business is sued or owes money, you are personally on the hook. It also does not give you a US entity that banks and processors recognize.
For a non-resident wanting US banking, payments, and liability protection, a sole proprietorship does not deliver any of it. It is the baseline to move away from, not a serious option.
LLC explained
A Limited Liability Company is a separate legal entity that protects your personal assets while staying simple to run. By default it is a pass-through: the company usually pays no federal income tax itself, and profits flow to the owners. It has light admin, flexible ownership, and is cheap to form and maintain.
For freelancers, agencies, ecommerce sellers, and bootstrapped software businesses, the LLC hits the sweet spot of protection, low cost, and tax simplicity. It is the structure most non-resident founders should start with.
C-Corp explained
A C-corporation is a separate taxable entity. It pays corporate income tax on its profits (a 21% federal rate), and when it distributes dividends, shareholders are taxed again on those, the so-called double taxation. In exchange, it offers the structure investors expect: shares, stock options for employees, and a clean ownership ledger.
The C-corp shines for one purpose above all: raising venture capital and scaling toward an exit. For a small online business, its tax and administrative weight is usually overkill.
How taxation differs
Taxation is the clearest dividing line. An LLC is a pass-through, so profits are taxed once, in the owners' hands. A C-corp is taxed twice: once at the company level on profits, and again at the shareholder level on dividends.
| LLC | C-Corp | |
|---|---|---|
| Entity-level tax | Usually none (pass-through) | 21% federal corporate tax |
| Owner-level tax | On their share of profit | On dividends received |
| Net effect | Taxed once | Potentially taxed twice |
For non-residents the LLC story is often favorable: if your income is not effectively connected to a US trade or business, the pass-through may owe no US federal income tax, though filings still apply. The full picture is in the tax guide.
Startup funding: why investors want a C-Corp
If you plan to raise from US venture capital, the C-corp is effectively mandatory, and a Delaware C-corp is the standard. Investors are set up to buy stock in a Delaware corporation, not membership interests in an LLC, and accelerators and convertible-note frameworks assume it. Trying to raise a priced round as an LLC creates friction most investors will not accept.
Equity and stock options
C-corps can issue shares and grant employee stock options cleanly, which LLCs cannot do in the same way. If equity compensation matters to your plan, that points to a C-corp.
Ecommerce and freelancers: why the LLC usually wins
If you are selling products on Shopify, freelancing for clients, or running a bootstrapped SaaS, you almost certainly want an LLC. You get liability protection and a US entity for banking and payments without the double taxation, board formalities, and higher upkeep of a C-corp. The money you save on tax and admin stays in the business.
Unless raising venture capital is a concrete near-term plan, the C-corp's advantages do not apply to you, while its costs do.
Non-resident considerations
A few points are specific to non-residents and often decide the question:
- No S-corp option: the S-corporation, a tax election some US owners use, is not available to non-resident aliens, so your realistic choice is LLC or C-corp.
- Dividend withholding: a C-corp paying dividends to a non-resident generally triggers US withholding (often 30%, or a lower treaty rate), stacking on top of the 21% corporate tax.
- Filing either way: both LLCs and C-corps owned by foreigners have US filing duties, including Form 5472 in many cases, so neither lets you skip compliance.
LLC vs C-Corp: making the call
| Factor | LLC | C-Corp |
|---|---|---|
| Taxation | Pass-through, taxed once | Corporate tax plus dividend tax |
| Admin burden | Low | Higher (board, bylaws, minutes) |
| Raising US venture capital | Difficult | Standard and expected |
| Employee stock options | No | Yes |
| Best for | Ecommerce, freelancers, bootstrapped SaaS | Funded, high-growth startups |
Can you convert later?
Yes. A common path is to start as an LLC for simplicity and convert to a C-corp later if and when you raise money. Conversion takes some legal work but is well-trodden, so you do not need to choose the heavier structure now just in case. Start with what fits today.
Start your US LLC the simple way through usllc.io
For most non-resident founders, an LLC is the right first move. We form your Wyoming LLC with the EIN and US address you need, and you can always convert later if you raise.