C-Corp vs S-Corp, for an Indian founder.

A US corporation (formed as a C-Corp under state law) can elect S-Corporation status under IRC Subchapter S by filing Form 2553. The election flips the entity's federal tax treatment from double taxation (corporate 21% + shareholder dividend tax) to pass-through taxation (profits flow to shareholders and are taxed once at their rates).

Eligibility requirements:

• Domestic US corporation.
• No more than 100 shareholders.
• All shareholders must be individuals, certain trusts, or certain estates — no corporations, no partnerships.
• All shareholders must be US citizens or US tax residents.
• Only one class of stock (voting differences allowed; economic differences not).

Election mechanics: Form 2553 filed within 2 months and 15 days of the start of the tax year in which the election is to take effect, signed by all shareholders.

An Indian individual who is not a US tax resident (not a green-card holder, not meeting the 183-day substantial-presence test) cannot be an S-Corp shareholder. The election is simply unavailable where any shareholder fails the US-citizen-or-resident test.

Practical implications for Indian founders:

• You cannot elect S-Corp status for a Delaware C-Corp if you (the Indian individual founder) are a shareholder and not a US tax resident.
• Your Delaware C-Corp defaults to C-Corp tax treatment: 21% federal corporate tax on profits + 30% US withholding (reduced to 15% / 25% under India-US DTAA) on dividends paid to you.
• If you later become a US tax resident (H-1B, L-1, green card for 183+ days in a tax year), S-Corp election becomes available — but only prospectively, with Form 2553 filed in that year.

For an Indian founder wanting pass-through tax treatment on their US entity, the LLC structure delivers what S-Corp would have delivered:

• A single-member LLC is a disregarded entity for US federal tax by default — profits flow through to the single member (the Indian individual) with no entity-level US tax, unless the profits are US-source Effectively Connected Income (ECI).
• A multi-member LLC is a partnership for US federal tax by default — profits are reported to each member on a Schedule K-1 and taxed at the member level.
• No shareholder-eligibility restrictions — Indian citizens, Indian companies, trusts, and other non-US persons can be LLC members.
• No one-class-of-stock restriction — LLC operating agreements can allocate profits, losses, and distributions in any economically-reasonable manner.

Trade-off: LLCs are not VC-fundable. If you need US venture capital, the LLC must convert to a C-Corp (F-reorg) first.

Scenario: Indian founder owns 100% of a US entity with USD 500,000 of pre-tax profit. All operations in India, but entity classified as C-Corp with the profit coming from US customers.

Case 1: Delaware C-Corp (default).

• US federal corporate tax: USD 500,000 × 21% = USD 105,000.
• Delaware franchise tax: USD 400 (assume minimum).
• After-tax at entity: USD 394,600.
• Dividend to Indian founder: USD 394,600 × (1 - 25% treaty withholding) = USD 295,950 net to India.
• Indian founder reports dividend income in India; claims foreign tax credit; net Indian tax varies.

Case 2: Wyoming or Delaware single-member LLC (pass-through disregarded).

• US federal tax on US-source ECI, if any (varies by activity).
• No entity-level tax if no US-source ECI.
• Profits flow to the Indian founder and are taxed in India at Indian rates.
• No US dividend withholding (not a dividend; LLC distribution to member).

The LLC path is materially better if the activity does not generate US-source ECI. The C-Corp path is often required for operational reasons (VC-fundability, US employee hiring, US customer contracts). Model both before deciding.