C-Corp, S-Corp, LLC: What a French leaders needs to know before setting up a company in the US
- 12 hours ago
- 8 min read
As a French entrepreneur, you are already familiar with SAS and SARL. But when you start looking at the United States, three terms systematically come up: C-Corp, S-Corp and LLC .
Generally, your first instinct is to look for equivalents: What is the American equivalent of a SAS? Is the LLC the same as a SARL? Is an S-Corp simply a less taxed company?
That's exactly when the misconceptions and mistakes start...
Because in the United States, a company's legal structure and its tax treatment are two different things. The same LLC can be taxed in several different ways at the federal level.
For a French executive preparing to establish a presence in the United States, understanding this difference is certainly more useful than trying to find the exact American equivalent of a SAS or SARL...
This article intentionally presents the main mechanisms in a simplified manner. Legal and tax treatment depends in particular on the relevant US state, the chosen structure, its shareholding, the tax residency of the individuals involved, and the specific circumstances of each company. If you have any questions, ask Blendy, international CPA.
C-Corp: the easiest structure to understand from a French perspective
When we talk about C-Corporation, we are generally referring to an American corporation taxed under the classic corporate tax regime.
This type of American corporation is unique in that it is a separate legal entity from its shareholders for tax purposes. It generates its own profits, pays its own taxes, and may then distribute a portion of its profits as dividends.
The Internal Revenue Service (IRS) , the U.S. federal tax authority, currently applies a federal tax rate of 21% to the taxable income of C-Corps. State-specific taxes may also apply. In Florida, for example, there is a state-specific Corporate Income Tax.
When profits are subsequently distributed to shareholders as dividends, they may be taxed again at the shareholder level. The IRS itself refers to this as double taxation, meaning double taxation of profits : first at the corporate level, and then a second time at the shareholder level upon distribution.
This structure may seem relatively familiar to you as a French business owner accustomed to an SAS or an SARL subject to corporate income tax: company profit → corporate income tax → potential distribution → shareholder taxation.
However, this does not make the C-Corp "the American equivalent of the SAS". The rules of governance, capital, shareholding, compensation, and, of course, taxation are different.
Nevertheless, the C-Corp offers a significant advantage in an international context: it can have foreign shareholders (individuals and companies), unlike the S-Corp. A French company can therefore, for example, own a US C-Corp.
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S-Corp: this is not another type of corporation
And this is probably one of the most common misunderstandings. An S-Corporation is not simply another legal version of a C-Corporation. It is, first and foremost, a federal tax regime that certain U.S. companies can choose if they meet the requirements set forth by the IRS.
The main advantage is the pass-through structure: in principle, the company's taxable income is passed directly to the shareholders, who include it on their own tax return.
The company thus avoids the typical double taxation of a C-Corp, first at the corporate level and then again when dividends are distributed. This is why the S-Corp structure regularly comes up in discussions about compensation for entrepreneurs in the U.S..
But for a French entrepreneur, there is one major restriction: A person considered a "nonresident alien" cannot be a shareholder of an S-Corp!
In US tax terminology, a nonresident alien refers to a foreign person who is not considered as tax resident of the United States.
The word "alien" here has nothing to do with its common meaning. It is a legal term used by the US administration to designate a foreign person.
To qualify for the S-Corp scheme, the company must, in particular:
be an eligible US company
have a maximum of 100 shareholders
to have only one category of shares
to have only shareholders authorized by US rules
not to have any non-resident aliens among its shareholders
Corporations and partnerships (partnerships in the US tax sense) generally cannot be shareholders of an S-Corp either.
This last rule is particularly important when an entrepreneur already owns a French company or holding company. He cannot simply create an S-Corp and have it owned by its French company.
It's also important not to confuse French citizenship with U.S. tax status. A French citizen who becomes an American tax resident may find themselves in a different situation than an executive living and tax-resident in France.
In other words, seeing an S-Corp presented as " the best structure for a French entrepreneur " on an American website does not mean that it is accessible, or suitable, for you.
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LLC: one legal structure, several possible tax treatments
The Limited Liability Company (LLC), is probably the most confusing structure when reasoning with French references.
An LLC is a legal structure created under the law of one of the US states. However, its federal tax treatment can afterwards vary depending on the number of owners and the tax options chosen.
The owners of an LLC are called members (or associates).
By default:
A single-owner LLC, is generally treated as a disregarded entity. This means that, for federal income tax purposes, it is not considered a separate taxing entity from its owner.
An LLC with multiple owners is generally treated as a partnership (in the US tax sense).
An LLC can also opt to be taxed like a Corporation.
And this is where the U.S. system becomes particularly confusing for a French entrepreneur:
An LLC, when it meets the necessary conditions, can even choose to be taxed under the S-Corp regime.
The legal structure and tax classification do not necessarily overlap. This is also why presenting the LLC as "the U.S. SARL" is appealing... but misleading.
Both structures allow, in particular, for limiting the liability of partners or members in many situations, but their legal and especially tax operation remains very different.
C-Corp, S-Corp, LLC and SAS/SARL: the essential differences
C-Corp | S-Corp | LLC | French SAS / SARL | |
What the term refers to | Corporation -type company subject to the standard tax regime | A tax regime available under certain conditions to certain US companies. | Legal structure created under the law of a US state | French legal forms |
Profit taxation | Corporate income tax | The result is generally transferred to the shareholders. | Depends on its tax classification | Generally IS, with possible exceptions or options |
Double taxation of company + shareholder | Possible during dividend distribution | Generally avoided at the federal level thanks to pass-through | Depends on the tax structure chosen | Possible with corporate income tax followed by dividend taxation |
French shareholder, non-resident of the US | Possible in principle | No, if considered as non-resident alien | Generally possible, with specific tax consequences | — |
Can a French company own it? | Yes, in principle. | No, in principle. | Yes, in principle. | — |
Flexibility in choosing US tax treatment | More limited | Specific regime subject to conditions | Very important | The system is more closely linked to the chosen legal form. |
French shortcuts to avoid | "It's an American SAS." | "It's a different kind of company than a C-Corp." | "It's an American limited liability company." | — |
In France, SAS and SARL are first and foremost clearly defined legal structures. They are generally subject to corporation tax, although different regimes or options may exist in certain situations. The standard corporation tax rate is currently 25%.
In the United States, it is necessary to further separate the legal framework from its tax treatment .
The trap of the "simple and cheap" LLC
The LLC is very often presented as the easiest solution to quickly create a business in the United States.
Legally, its set up can indeed be relatively straightforward. However, simplicity of set up does not equate to tax simplicity, particularly when its owner is French.
Consider the example of a US LLC wholly owned by a foreign individual and treated as a disregarded entity for tax purposes, meaning it is not considered separate from its owner for federal income tax. It may still have specific reporting obligations to the IRS.
A foreign-owned US disregarded entity, that is, a fiscally non-distinct US entity owned by a foreign person, may in particular be concerned by Form 5472, a form used to declare certain transactions with foreign related parties, accompanied in this context by a Form 1120 established according to specific rules.
Creating an LLC in just a few clicks is one thing. Determining how it will be taxed in the United States, what tax returns it will need to file, and how its income will then be treated in France is quite another question.
So, which structure should you choose to develop your business in the United States?
There is no one-size-fits-all answer... Before choosing between a C-Corp and an LLC, and then determining your tax treatment, you should ask yourself several questions:
Where is the CEO's tax resident?
Who will own the U.S. company: the CEO directly or a French company?
Are there multiple partners? Are they French, American, or both?
Will the profits be reinvested in the United States or regularly repatriated to France?
Is the company planning to bring in investors?
Will the executive be physically working in the United States?
Is there already a French SAS, SARL or holding company that needs to be integrated into the structure or that will own the U.S. entity?
Two companies operating in exactly the same sector in Miami may therefore have an interest in retaining different structures.
And a tax structure that appears attractive when viewed solely through the lens of U.S. rules may become much less relevant once the executive’s tax residency, the existing French company, the tax treaty between France and the United States, and the way cash flows between the two countries are taken into account.
The right choice, therefore, is not to find “the U.S. company with the lowest tax rate.” It is to establish a structure that is consistent with the business, the shareholder base, and the executive’s objectives.
Blendy supports French executives in their France-US structuring
At Blendy, international CPA based in Paris, Miami and Montréal, we support companies and their leaders on both sides of the Atlantic.
Our role is not simply to answer "C-Corp or LLC?".
We are looking at all aspects of your project:
existing French company
US activity
shareholding,
tax residence of the CEO,
compensation,
profit recovery,
accounting and tax obligations in each country.
Our accounting and financial expertise in France and the United States allows us to compare different scenarios before the set up of your structure.
This prevents you from discovering later on that a choice that seemed very simple on paper ultimately resulted in tax or reporting obligations that you hadn't really anticipated.
Are you planning to expand into the United States?
Blendy can help you structure your business and its financial organization between France and the United States.
This article intentionally presents the main mechanisms in a simplified manner. The legal and tax treatment depends in particular on the US state concerned, the chosen structure, its shareholding, the tax residency of the individuals involved, and the specific situation of each company.
Sources
Internal Revenue Service (IRS) - S Corporations : S-Corp tax operation, eligibility requirements, 100 shareholder limit, single class of shares and exclusion of non-resident aliens.
IRS - Forming a Corporation : separate tax personality from the C-Corp and principle of double taxation of corporation/shareholder.
IRS - Publication 542, Corporations : Tax rules applicable to C-Corps and federal rate of 21%.
IRS - Limited Liability Companies / Entities : tax classification of LLCs with one or more partners.
IRS - Publication 3402, Taxation of Limited Liability Companies : possibility for an LLC to opt for taxation as a C-Corp or S-Corp.
IRS - LLC Filing as a Corporation or Partnership : rules for classification as partnership, corporation or disregarded entity.
IRS - Instructions for Form 5472 : reporting obligations concerning, in particular, certain US entities owned by foreign persons.
impots.gouv.fr - Corporate tax : French companies concerned and standard corporate tax rate of 25%.
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