- Raising VC money: choose a Delaware C-Corp — investors and ESOPs expect it.
- Bootstrapped services or holding: an LLC is simpler, but a foreign-owned LLC must file Form 5472 every year.
- Indian founders: both need ODI reporting in India.
The short answer
- Raising VC, using SAFEs or granting stock options? Choose a Delaware C-Corp.
- Small, owner-run business with no outside investors? An LLC can work — but as an India-resident owner, understand the US filings and Indian tax treatment first.
Side-by-side
| Delaware C-Corp | LLC (single foreign owner) | |
|---|---|---|
| US tax on profits | 21% federal corporate tax at company level, plus any state tax | Disregarded entity; the owner is taxed in the US only on income effectively connected with a US trade or business |
| Taking money out | Dividends face US withholding — reduced under the India–US treaty (15% or 25%, depending on shareholding) | Distributions to the owner; US tax depends on the nature of the income |
| Investors | Standard for VCs, accelerators and SAFEs | Most VCs will not invest |
| Employee equity | Stock options, standard documentation | Profit interests / units — unfamiliar to employees |
| Key federal filings | Form 1120 (and Form 5472 if 25%+ foreign-owned with reportable transactions) | Pro forma Form 1120 + Form 5472 every year |
| Delaware annual cost | Annual report + franchise tax by 1 March | Flat $400 by 1 June |
When a C-Corp is right
If there is any realistic chance you will raise from US investors, choose the C-Corp from day one. Converting an LLC later costs legal fees and can trigger tax, and investors will ask for it anyway. A C-Corp also gives you clean founder vesting and an option pool.
When an LLC can work
A single-member LLC can suit a consulting or services business, a US storefront for an Indian product, or a holding vehicle — where the owners don’t need outside equity. Remember the Form 5472 obligation, which applies even with no revenue.
How India sees each
This is where LLCs get tricky. The US may ignore the LLC for tax, but Indian tax law generally looks at it as a separate foreign entity. That mismatch can make it harder to claim foreign tax credit in India for US tax paid, and changes how income is reported. In both cases, Indian residents must disclose the holding in Schedule FA of their income-tax return, and the investment must follow FEMA’s overseas investment rules. More: FEMA, ODI & tax rules for US companies.
Converting later
An LLC can convert to a C-Corp, and Delaware makes the legal step straightforward. The tax and FEMA consequences are the part to plan — ideally before the round that requires it. Step-by-step: converting an LLC to a Delaware C-Corp.
Frequently asked questions
Can a foreigner own a Delaware C-Corp?
What is the dividend withholding rate for Indian shareholders of a US C-Corp?
Do VCs invest in LLCs?
Is an LLC cheaper to run from India?
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.