Can I raise venture capital as an LLC?

Technically yes, practically rarely. US venture funds have structural reasons to avoid pass-through entities — many have tax-exempt limited partners who would receive problematic income — and standard financing documents assume a Delaware corporation. Most rounds require converting first.

What is a Delaware flip?

Converting an existing company, often a non-US entity or a US LLC, into a Delaware C-Corporation so it can take standard US venture investment. It is a routine transaction that investors see constantly, but it has real tax consequences in both the US and the founder's home country and should be modelled before it is executed.

What is an 83(b) election and why does the deadline matter?

It elects to be taxed on restricted stock at grant rather than as it vests. When the stock is worth very little at grant, that usually means paying tax on almost nothing and starting the capital gains clock early. The election must be filed with the IRS within 30 days of the grant, and that deadline cannot be extended.

Can a non-US founder raise from US investors?

Yes. Foreign founders regularly raise from US funds. What matters to investors is the entity — normally a Delaware C-Corp — rather than the founder's nationality. Practical friction usually appears in banking, in signing logistics, and in your home country's treatment of the shares you hold.

Is an asset sale or a stock sale better?

It depends which side you are on. Buyers usually prefer an asset sale, because they choose which liabilities to take and get a stepped-up basis in the assets. Sellers usually prefer a stock sale, which is typically simpler and more likely to be taxed as capital gain. The split is a negotiation, and it materially changes what you keep.

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Scale · 5 min read

Scaling, fundraising and exiting a US company

The structure that was right at $0 is often wrong at a term sheet. Here's what changes when you raise, what diligence actually checks, and how a sale gets taxed.

The short answer

US venture investors expect a Delaware C-Corporation. LLCs converting for a raise do a "Delaware flip", which is routine but has tax consequences worth modelling first. Founders receiving restricted stock should consider an 83(b) election within 30 days of grant, as the deadline is strict and cannot be extended.

Most of this guide library is about getting a company running. This one is about the point where the structure that was correct at zero revenue becomes the thing standing between you and a term sheet.

Why investors want a Delaware C-Corp

It is not snobbery. US venture funds frequently have tax-exempt limited partners — endowments, foundations, pension funds — for whom pass-through business income creates problems they would rather not have. A C-Corp does not pass income through, which removes the issue.

On top of that, Delaware corporate law is deep and predictable, and every standard financing document assumes it. Presenting an LLC means bespoke drafting, higher legal fees on both sides, and a conversation about structure instead of about your company.

	LLC	Delaware C-Corp
Standard VC investment	Rare and awkward	The default
Stock options for staff	Clumsy	Standard, well understood
Federal tax	Pass-through	21% at company level
Admin burden	Low	Board, minutes, bylaws, filings
Franchise tax	$300/yr in Delaware	Assessed on shares — can be large if set up carelessly
QSBS potential	No	Possible under Section 1202, subject to conditions

The conversion

Converting an LLC to a Delaware C-Corp is routine. It is also a taxable event in some circumstances, and its treatment in your home country may be entirely different from its treatment in the US.

Model the tax consequences before signing anything — in both countries if you are not US-resident.
Convert, either by statutory conversion or by forming a new corporation and contributing the LLC.
Issue founder stock, with vesting that reflects what investors will expect.
File 83(b) elections within 30 days. No extensions.
Adopt bylaws, appoint a board, and start keeping minutes properly.
Clean up the cap table before diligence rather than during it.

Founder equity and the 83(b)

Founder shares normally vest — commonly over four years with a one-year cliff. Investors expect it, and it also protects the remaining founders if someone leaves early.

Raising as a founder outside the US

It happens routinely. Investors care about the entity, the team and the business — not your passport. The friction is practical rather than structural.

Banking. A funded company needs an account that can receive a wire of that size without triggering a review that freezes it. Tell the bank in advance.
Signing. Notarisation and apostille requirements vary by country and can add days at the worst moment.
Your home tax treatment. Holding shares in a US corporation may have consequences where you live — including on paper gains you have not realised.
Board logistics. Time zones are a real constraint once you have a board that meets.

Fractional CFO

Someone who has run a raise before — modelling the conversion, cleaning the cap table, and preparing what diligence will actually ask for.

See what's included

What diligence actually checks

Almost none of it is about your product. It is about whether the company owns what it claims and has filed what it should.

Cap table accuracy — every issuance documented, every 83(b) filed.
IP assignment from every founder, employee and contractor. The most common failure.
Tax filings complete, including Form 5472 for any foreign-owned entity in the history.
Good standing in every state where the company is registered.
Clean books, ideally on an accrual basis.
Contracts with real customers, signed by people authorised to sign.

Selling

	Asset sale	Stock sale
Buyer prefers	Usually — picks assets, steps up basis	Less often
Seller prefers	Less often	Usually — simpler, often capital gain
Liabilities	Buyer selects	Transfer with the company
Tax to seller	Can include ordinary income components	More typically capital gain
Complexity	Higher — assets and contracts assigned individually	Lower

A general characterisation. The tax outcome depends on entity type, holding period and the specific assets — model it with an adviser before agreeing a structure.

One structure worth knowing about early: Qualified Small Business Stock under Section 1202 can, where its conditions are met, exclude a substantial portion of the gain on a sale of C-Corp stock. The conditions are specific and include a minimum holding period, which is exactly why it is worth knowing about at incorporation rather than at exit.

Where to go next

Bookkeeping on an accrual basis is what diligence expects. Operations covers the IP assignment clause that most often causes problems. If none of this applies yet, it is genuinely fine to ignore this guide until it does.

Frequently asked questions

Can I raise venture capital as an LLC?: Technically yes, practically rarely. US venture funds have structural reasons to avoid pass-through entities — many have tax-exempt limited partners who would receive problematic income — and standard financing documents assume a Delaware corporation. Most rounds require converting first.
What is a Delaware flip?: Converting an existing company, often a non-US entity or a US LLC, into a Delaware C-Corporation so it can take standard US venture investment. It is a routine transaction that investors see constantly, but it has real tax consequences in both the US and the founder's home country and should be modelled before it is executed.
What is an 83(b) election and why does the deadline matter?: It elects to be taxed on restricted stock at grant rather than as it vests. When the stock is worth very little at grant, that usually means paying tax on almost nothing and starting the capital gains clock early. The election must be filed with the IRS within 30 days of the grant, and that deadline cannot be extended.
Can a non-US founder raise from US investors?: Yes. Foreign founders regularly raise from US funds. What matters to investors is the entity — normally a Delaware C-Corp — rather than the founder's nationality. Practical friction usually appears in banking, in signing logistics, and in your home country's treatment of the shares you hold.
Is an asset sale or a stock sale better?: It depends which side you are on. Buyers usually prefer an asset sale, because they choose which liabilities to take and get a stepped-up basis in the assets. Sellers usually prefer a stock sale, which is typically simpler and more likely to be taxed as capital gain. The split is a negotiation, and it materially changes what you keep.

Topics in this guide

Sources

Last reviewed August 23, 2026. Fees, deadlines and government processing times change — verify against the primary source before acting.

Founders 8 does not provide tax advice. Tax residency depends on facts and rules specific to each jurisdiction — review your position with a qualified adviser.