The Two Workhorses of US Business Formation
While the US offers several entity types, two dominate for international businesses: the limited liability company (LLC) and the C-corporation (C-corp). Both provide limited liability protection, shielding the owners’ personal assets from the debts and obligations of the business. The critical differences lie in how they are taxed, how they raise capital, and how investors and acquirers expect them to be structured.
For a UK founder, the instinct is often to reach for whichever entity sounds most familiar. That instinct can be expensive. The right answer depends almost entirely on what you intend to do in the US — operate a subsidiary, raise venture capital, or hold assets — and on how the chosen structure interacts with both US federal tax and your existing UK group.
Why Most Funded Startups Choose the Delaware C-Corp
If your plan involves raising capital from US venture capital or angel investors, the C-corporation — almost always incorporated in Delaware — is the expected and frequently mandatory structure. US institutional investors are set up to invest in Delaware C-corps: their fund documents, their preferred-stock mechanics, and their tax positions all assume it.
The C-corp also supports the features investors expect, including multiple classes of stock, stock option pools for employees, and the qualified small business stock (QSBS) tax benefits that can exempt significant gains from federal tax. For a deeper look at the instruments used at this stage, see our guide to SAFE notes and convertible notes.
Where the LLC Still Makes Sense
The LLC is a flexible, pass-through vehicle: by default it is not taxed at the entity level, and profits flow through to the owners. For a wholly owned US subsidiary that will not raise outside equity — a services arm, a sales office, or a holding entity — an LLC can be simpler and more tax-efficient.
However, the pass-through treatment that makes LLCs attractive domestically can create complications for a UK parent, including US filing obligations and potential mismatches with the UK tax treatment of the same income. The interaction between US and UK tax rules is where structuring decisions are won or lost, a theme we explore further in our overview of US tax compliance for UK companies.
Getting the Decision Right the First Time
Converting from an LLC to a C-corp later is possible, but it is rarely free — it can trigger tax, dilute clean cap-table history, and slow a financing at exactly the moment speed matters. Because the choice touches tax, fundraising, and corporate governance simultaneously, it is best made with US and UK counsel working together from the outset.
The most common, costly pattern we see is a UK founder who forms the wrong entity quickly to “get started,” then has to unwind it under deal pressure. A short structuring conversation before incorporation almost always pays for itself.
