Founder guide
LLC or Delaware C-Corp? Start with how you plan to get paid
Raising venture capital? A Delaware C-Corp is usually the practical starting point. Building a business that pays its owners from profits? Put an LLC on the shortlist. Your funding plan and tax residency matter more than what another startup chose.
By Corply · Updated
1. Choose the structure around the business
A business needs rules for who owns its assets, who can commit it to a contract, and how owners receive value. The legal entity supplies that framework. The formation state supplies its corporate law. Tax treatment determines who reports and pays tax on the profits. Those are three decisions; “Delaware” answers only one.
An LLC’s owners are called members. Its operating agreement sets ownership and management rules. Under default U.S. federal rules, a single-member LLC is generally part of its owner for income tax; a multi-member LLC is generally a partnership. Profits generally flow into the owners’ tax calculations rather than a separate corporate tax layer. Retaining cash does not necessarily defer owners’ tax. An LLC can elect corporate taxation. IRS classification rules.
A C-Corp pays tax on its taxable profits. If it distributes those profits as dividends, shareholders can owe tax again. That second layer matters when owners regularly withdraw profits. A company reinvesting to grow has a different cash-flow plan. Neither structure makes revenue automatically tax-free. IRS explanation.
The three-question decision sheet
| Question | What the answer changes |
|---|---|
| Will institutional investors fund this business? | A Delaware C-Corp is the usual starting point. Professional investors often require conversion before investing in an LLC. |
| Will owners regularly take out profits? | Compare an LLC’s tax treatment with corporate tax plus dividend tax. Model actual owner payouts with an accountant. |
| Where do the owners live and the business operate? | Check those jurisdictions before filing. U.S. formation does not settle home-country tax or other states’ registration requirements. |
Investors need defined rights they can compare across deals, and employees need documented equity awards. Corporate shares and stock arrangements are familiar tools for both. An LLC can raise investment too, but its particular operating agreement and tax treatment can add investor review or require conversion. Stripe’s guide, with input from Orrick.
Three expensive assumptions to drop
- “Delaware means I only deal with Delaware.” Foreign qualification registers an existing company in another state where its activities require it. Where you operate can create obligations beyond where you formed. SBA guidance.
- “No U.S. tax means no U.S. paperwork.” A foreign-owned, disregarded U.S. LLC with reportable related-party transactions can need Form 5472 attached to a pro forma Form 1120. Have a cross-border accountant review the actual transactions. IRS instructions.
- “I can ignore it until we make money.” Delaware’s franchise tax and annual report follow the corporation’s existence, not its sales. LLCs have an annual tax too. Budget ongoing obligations before formation. Delaware requirements.
What about an S-Corp?
S-Corp status is a federal tax election with eligibility rules. Nonresident alien shareholders are prohibited, as are partnership and corporate shareholders. It also permits only one class of stock. Check eligibility before treating it as an option. IRS requirements.
2. Turn a C-Corp decision into the actual company with Corply
Corply currently forms Delaware C-Corps. It does not form LLCs or perform an automatic LLC conversion. If an LLC fits better, choose it. A checkout page should never choose your entity.
- Confirm people and ownership. Corply reuses saved details for review, invites cofounders to confirm theirs, and records roles and the equity split. For unvested founder shares, the company retains specified buyback rights; fully vested stock follows a different document path.
- Review the legal packet. Before filing, Corply prepares the Certificate of Incorporation and each founder’s narrow formation authorization. After Delaware acceptance, it prepares bylaws, incorporator action, initial board consent, founder stock agreements and Form SS-4 for the EIN application.
- Authorize your own documents. Each founder reviews and signs their own bundle. That authorization covers the specified standard documents executed after acceptance. Corply cannot borrow one founder’s consent for another.
- Review payment separately. Corply shows the formation charge and required ongoing plan before checkout. Signatures come first; settled payment is required before filing. State acceptance remains a separate step.
After formation, ask Corply to show the stock ledger or prepare eligible director, officer and restricted-stock actions. Approvals, signatures and verified stock payments are separate steps because proposing a change does not make it effective.
Before starting, write down your expected investors, owner payouts and each founder’s tax residency. Have your lawyer or accountant resolve any cross-border or conversion questions. Then connect Corply with the entity decision already made.
This page is general education, not legal or tax advice, and reading it does not create an attorney-client relationship. Corply is operated by 0Lumen Labs Corp., is not a law firm, and routes questions that need individualized judgment to licensed professionals. Rules and fees change, so verify current requirements with the relevant state, the IRS, or your counsel.