C-Corp or LLC - and how to set up an American entity right
This guide is for anyone who has already passed the first question - whether a US entity is needed at all (if not yet: start with the Delaware guide and the Stripe guide). Now come the execution questions: C-Corp or LLC? What do formation services like Stripe Atlas actually give you? And where do you open a bank account while sitting in Tel Aviv? We sorted it out - including the Israeli side no American guide will tell you about.
The difference in one line - and then in a table
An LLC is a "transparent" entity by default in the US: it has no corporate tax of its own, and the income is attributed to the owners. A C-Corp is a separate tax entity: it pays federal corporate tax (21%) on its profits, and what is distributed to the owners is taxed again as a dividend. That is America; for Israelis there is a twist on each one - below.
| LLC (single-member) | C-Corp | |
|---|---|---|
| Federal tax at the entity level | None (disregarded) - subject to there being no US activity or presence creating a liability | 21% on the profit + state tax as applicable |
| Annual IRS reporting | Form 5472 + pro-forma 1120 (mandatory for foreign ownership; a base penalty of $25,000 for non-filing) | A full corporate return (Form 1120) |
| Annual Delaware franchise tax | $300 fixed (by 1 June) | A minimum of $175 (authorized shares method) or $400 (assumed par value method) + a $50 annual report fee (by 1 March); a typical Atlas startup pays a few hundred dollars in practice |
| Investors and VC | Not suitable - funds do not invest in an LLC | The standard - shares, SAFEs, options (ESOP) |
| Flexibility and operation | Simple and cheap; minimal documents | Full corporate governance: a board, allocations, minutes |
| Future upgrade | Can be statutorily converted to a C-Corp when needed | - |
The Israeli twist - what happens on our side
Two points that make the choice more complex than any American guide suggests - and both apply to you as Israeli residents:
- LLC: the US sees it as transparent, but the Israel Tax Authority's position treats it by default as an opaque foreign company. That lack of synchronization is a recipe for double taxation if it is not handled: there is an election path for transparency for foreign-tax-credit purposes (Circular 5/2004), but the election is made deliberately, in time, and with consequences. This is the clause most builders miss - we expanded on it in the Delaware guide.
- C-Corp: a "cleaner" tax picture (a classic foreign company) - but a dividend distribution to you meets American withholding at source (under the Israel-US treaty) and Israeli dividend tax with a credit mechanism; profits accumulated in the company may meet the CFC rules if the income is passive in nature; and above all, control and management from Israel may make the whole company an Israeli tax resident. Both structures require two-country planning, not just a formation form.
Our rule of thumb for builders: need an American entity only for Stripe and processing? An LLC - simple, cheap ($300 fixed franchise), and convertible later. Raising from American investors, or building toward that? A C-Corp from day one - that is what investors require, and the 83(b) and the shares need to be right from the start. And anyone on a fundraising path but not there yet is usually better off with an Israeli company and a future flip, as we detailed in the Delaware guide.
Stripe Atlas and its peers - what you actually get
- Stripe Atlas is the most popular route: a one-time payment of $500 that includes incorporation in Delaware (C-Corp or LLC, your choice), a federal tax number (EIN), issuing founder shares and filing the 83(b) election (in a C-Corp), document templates, Stripe credits and partner discounts. A registered agent is included for the first year, and $100 a year after that.
- Its peers - doola, Firstbase, Clerky and others: the same category with different emphases. Some are strong at supporting foreigners (an EIN without an SSN, addresses), some sell annual packages with American bookkeeping. Compare by: what is included in the first year, what the second year costs, and whether there is real American document or tax service behind it.
- What none of them does: the Israeli side. Atlas will set you up a perfect company - and will not say a word about control and management, CFC rules, Circular 5/2004 or your annual return in Israel. That is not a flaw in them; it is simply not their job. It is ours - and the right order is Israeli advice before formation, not after.
- Watch the 83(b): in a C-Corp with founder vesting, filing the election within 30 days of the grant is critical (Atlas handles this) - missing it is an especially expensive American tax mistake.
Banking: where the money sits
An entity without a bank account is paper. The accepted options for an Israeli with an American entity:
| Solution | What it is | Notes for Israelis |
|---|---|---|
| Mercury | The popular digital banking for startups - no basic management fees, opened online | Supports foreign founders of an American company (requires an entity + EIN + a business address that is not a registered agent or a PO box). There is a list of prohibited countries - verify it is current; as of our check, shipping physical cards to Israel is suspended but virtual cards work immediately |
| Wise Business | A multi-currency account with American bank details (not an insured bank) | Easy to open, excellent for conversions and transfers to Israel; less of a "home account" for a fundraising company |
| Relay and others | Additional business neo-banks | An alternative when Mercury does not approve; similar requirements |
| Brex | Cards and credit for startups | Aimed at funded or growing companies - less relevant to a builder starting out |
The right order of operations: entity, then EIN, then bank account, then connecting Stripe. The EIN is the bottleneck (for foreigners without an SSN it takes time when done alone; formation services speed it up), and do not start bank KYC before you have it in hand.
What a year costs - the honest budget
So that the decision is economic rather than romantic, this is the annual order of magnitude of holding an active American entity (beyond the formation cost):
- LLC: franchise tax $300 + registered agent $100-150 + preparing the 5472 and IRS filings with an American CPA (usually hundreds of dollars) + bookkeeping according to scope. An initial order of magnitude: $1,000-2,000 a year.
- C-Corp: franchise tax + annual report (usually a few hundred dollars in a typical startup configuration) + registered agent + a full 1120 return with an American CPA (more expensive than a 5472) + corporate governance. An order of magnitude: $2,000-4,000+ a year.
- And in both cases: the Israeli support for reporting the structure in your return - because the Israeli side does not disappear. You weigh these numbers against what the entity gives you (for example the fee gap versus a MoR - the calculation is in the Stripe guide).
A licensed Israeli CPA (license no. 500125101) accompanying businesses and self-employed clients across Israel - including founders, builders and owners of digital products. Bookkeeping, filings to the authorities, annual reports and personal financial guidance. About Adir →
Official sources
- Stripe Atlas - what is included ($500, EIN, 83(b), registered agent $100/year; checked 2026)
- State of Delaware - official franchise tax calculation (LLC $300; C-Corp minimum $175/$400)
- Mercury - official eligibility requirements for opening an account
- IRS - reporting obligations of foreign-owned LLCs (Form 5472)
The information in this guide is general only, current as of August 2026, and does not constitute tax advice or a substitute for professional advice fitted to your business's circumstances. It is a condensed adaptation of our fuller Hebrew guide. For personal advice - talk to us.
An American entity - the questions everyone asks
I opened an LLC only for Stripe and have no US activity at all - do I owe American tax?
In the common structure - a single-member LLC of a foreign resident, with no employees, office or business presence in the US - there is usually no American federal income tax on the activity's profits, but there are obligations you must not miss: Form 5472 (a base penalty of $25,000 for non-filing), Delaware franchise tax, and a registered agent. And the tax itself is paid in Israel. The final determination depends on the facts (what exactly you sell and how) - that is precisely the setup check to do with us and with an American CPA.
Can I start with an LLC and convert to a C-Corp when I raise?
Yes - Delaware allows a statutory conversion of an LLC into a C-Corp, and it is a known route startups take ahead of raising. It has costs and timing (better at the start of a year, before investors come in, and with the tax implications handled in both countries). Anyone who already knows an American raise is part of the plan is usually better off with a C-Corp from day one, or an Israeli company with a future flip.
Mercury rejected me or closed the account - what now?
It happens, and it is not the end of the road: first check that the application met the basic requirements (a real business address rather than a registered agent, a valid EIN, a clear website or explanation of the activity) - and then try alternatives such as Relay or Wise Business. It is also important not to leave all the money in one channel: a Stripe balance plus a bank account plus regular withdrawals to Israel is basic risk separation.
What is an 83(b) and why does everyone talk about it?
An American tax election relevant to founder shares with vesting in a C-Corp: it fixes the tax measurement at the grant date (when the shares are worth cents) rather than at each vesting milestone (when they are already worth a lot). The filing window is 30 days from the grant - and it cannot be fixed. Atlas files it automatically; if you incorporated another way, make sure it was handled. For Israelis it also interfaces with the Israeli side - one more reason for two-country planning.
How do I take money from the LLC to Israel - and what is the tax?
Technically, a bank transfer to your account; tax-wise, this is exactly the question that requires planning: is the income reported in Israel on a current basis (under transparency) or as a dividend from a foreign company, what is the credit mechanism, and how does that sit with control and management. The answer depends on the structure chosen and the elections made - so it is settled before the money moves, not after. Withdrawing without a framework is how problems in the return are born.
The formation service also offers me a 'business address' and 'bookkeeping' in a package. Should I take it?
A real business address (not a PO box) is required for banking anyway - a legitimate address service is worth it. American bookkeeping in the package depends on scope: for a quiet LLC with a single 5472 it is sometimes more expensive than needed; for an active company it pays off. What matters is that there is one American party responsible for the filings there, and that they talk to us - so the Israeli and American returns tell the same story.