LLC or corporation? The choice that shapes everything else.

Both legal forms limit liability. The difference lies in taxation, in the internal organisation and in who will come on board later. The choice shapes the account, the cards, the filings and every investor who comes along.

In brief

The LLC is the leaner form: flexibly governed by the operating agreement and, with a foreign shareholder (member), usually not a separate taxable entity in the US. The corporation is a separate taxable entity — subject to 21% federal corporate income tax — and the standard when you plan to bring in investors or give employees a stake. For trading, services and building a card history, the LLC is usually the simpler choice.

The comparison

Simplified overview; classification in the home country follows its own rules.

  • Liability · LLC: limited to the company’s assets · Corporation: limited to the company’s assets
  • Tax in the US · LLC: with a foreign shareholder, usually not a separate taxable entity · Corporation: separate taxable entity, federal 21%, plus state tax depending on the state
  • Internal organisation · LLC: operating agreement, freely drafted · Corporation: bylaws, board of directors, shares under fixed rules
  • Investors · LLC: rare · Corporation: the standard
  • Employee participation · LLC: possible, but unusual · Corporation: common through stock options
  • Annual filing with the IRS · LLC: Form 5472 with Form 1120 (as a cover sheet) · Corporation: Form 1120; if a foreign shareholder holds at least 25%, Form 5472 as well
  • Running costs · LLC: lower · Corporation: higher, for example because of the Delaware Franchise Tax

When each form fits

  • LLC — Trading, services, card history: When the company handles orders, sells goods or is meant to build its own banking and card history — and no investors are planned.
  • Corporation — Investors, equity stakes, sale: When you plan to bring in US investors, give employees shares or sell the business later.

Can you switch later?

Yes — an LLC can be converted into a corporation. But the switch costs time, fees and a tax review in both countries. That is why it pays to ask the question seriously before formation: who should hold a stake in this company in three years’ time?

What you need to know

  • The choice of legal form has tax consequences in your home country. Our partner tax adviser reviews it before formation under your engagement.
  • Annual filing duties apply in the United States even without revenue (Form 5472 with Form 1120), along with state fees and the cost of the registered agent.

Frequently asked questions

What is the difference between an LLC and a corporation?

Both limit liability. The LLC is more flexible and, with a foreign shareholder, usually not a separate taxable entity in the US; the corporation is a separate taxable entity (federal 21%) and the standard for investors.

Which legal form do I need for US investors?

Generally a corporation, often in Delaware. Investors in the US know this form and expect it.

Can I convert an LLC into a corporation later?

Yes, but with effort: fees, new documents and a tax review in both countries.