US companies for founders abroad
No S election, Form 5472 either way, a Delaware flip for companies formed abroad, and the EIN and ITIN from outside the US.
Founders who live outside the US can own a US company, and many raise from US investors through a Delaware corporation. Three things change.
Delaware C corporation
- Good at
- What US investors buy.
- Preferred stock and options.
- Watch for
- Form 1120 and Delaware's filings.
- Form 5472 if 25% or more foreign-owned.
- Founders' home-country tax on their US shares.
- Best for
- Founders raising from US venture investors.
Single-member LLC
- Good at
No US corporate income tax at the entity.
- Watch for
- Form 5472 and a pro forma 1120 every year, with a $25,000 penalty for missing it.
- The owner's home country may tax the LLC's income directly.
- Best for
- A founder selling to US customers with no outside investors.
A foreign founder can't hold an S corporation; a Delaware C corporation is what US investors buy; and foreign ownership adds Form 5472 either way.
In this lesson: the Delaware flip, a foreign-owned LLC, and EINs and ITINs from abroad.
Pages in this lesson
3 pages go deeper, about 8 minutes in all. Read them in order, or open the one you need.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Anything marked as a convention is ours, not the rule-maker's.
- Federal statute
- 26 U.S.C. §1361(b)(1), (c)(4) (opens in a new tab)Small business corporation: no more than 100 shareholders, eligible shareholders only, one class of stockFree to read
- IRS guidance
- Instructions for Form 5472 (Rev. 12/2024), Foreign-owned U.S. DE (opens in a new tab)A foreign-owned single-member LLC files Form 5472 with a pro forma Form 1120Free to read
- Instructions for Form 5472 (Rev. 12/2024), Penalties (opens in a new tab)Information return of a 25% foreign-owned U.S. corporation or a foreign corporation engaged in a U.S. trade or businessFree to read
- IRS, Employer ID numbers (opens in a new tab)An EIN for a company run from outside the United StatesFree to read
- IRS, Individual Taxpayer Identification Number (opens in a new tab)ITIN — the individual number for someone without an SSNFree to read
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Form 5472The IRS information return a US corporation that is 25% or more foreign-owned at any time in the year — or a US disregarded entity wholly owned by a foreign person — attaches to its income tax return to report transactions with related foreign parties. $25,000 penalty for each failure to file, and $25,000 more for each 30 days it continues past 90 days after IRS notice
- ITINThe 9-digit number the IRS issues to a person who needs a US taxpayer identification number but is not eligible for a Social Security number, applied for on Form W-7
- Disregarded entityAn eligible entity with one owner that has not elected to be a corporation, ignored for income tax so its results go on the owner's return — Schedule C for an individual owner. It is still a separate legal entity, and still the employer for employment taxes
- S corporationA domestic corporation, or an LLC eligible to be treated as one, that has elected on Form 2553 to pass its income, losses, deductions and credits through to its shareholders. No more than 100 shareholders, all of them individuals other than nonresident aliens, estates, or certain trusts and exempt organizations, and one class of stock. Files Form 1120-S
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.