Why can't I raise as an LLC?

You technically can, but most US venture funds avoid pass-through entities because their tax-exempt limited partners would receive problematic income, and every standard financing document assumes a corporation. Raising as an LLC means bespoke drafting and a conversation about your structure instead of your company.

Is the conversion taxable?

It can be, depending on the mechanism used and the assets and liabilities involved. It may also be treated entirely differently by your home country if you are not US-resident. Model both sides with an adviser before executing — this is not a step to reverse-engineer afterwards.

Does flipping reset my QSBS holding period?

Qualified Small Business Stock conditions include a holding period and company-level tests, and how a conversion affects them depends on the specific structure. Ask your counsel about this explicitly at the time of the flip rather than discovering it at exit.

Scaling, fundraising and exiting a US company

Guide · 1 min read

The Delaware flip: converting to a C-Corp to raise

Routine for investors, and not routine for your tax position — particularly if you are not US-resident.

The short answer

A Delaware flip converts an existing company, often a US LLC or a non-US entity, into a Delaware C-Corporation so it can accept standard US venture investment. It is routine in venture financing but can be a taxable event and may be treated differently in the founder's home country, so it should be modelled first.

The order that matters

Model the tax consequences first — in both countries if you are not US-resident. This is the step people skip.
Convert, by statutory conversion or by forming a new corporation and contributing the existing entity.
Issue founder stock with vesting investors will expect.
File 83(b) elections within 30 days. No extensions exist.
Adopt bylaws, appoint a board, and start keeping minutes properly.
Clean the cap table before diligence rather than during it.

What it does not fix

Any unfiled history follows the company. A dormant LLC in the structure with unfiled Form 5472 filings does not disappear on conversion — it becomes a disclosed liability in diligence. Clean up old entities before you need to.

For the underlying entity decision, see LLC vs C-Corp.

Frequently asked questions

Why can't I raise as an LLC?: You technically can, but most US venture funds avoid pass-through entities because their tax-exempt limited partners would receive problematic income, and every standard financing document assumes a corporation. Raising as an LLC means bespoke drafting and a conversation about your structure instead of your company.
Is the conversion taxable?: It can be, depending on the mechanism used and the assets and liabilities involved. It may also be treated entirely differently by your home country if you are not US-resident. Model both sides with an adviser before executing — this is not a step to reverse-engineer afterwards.
Does flipping reset my QSBS holding period?: Qualified Small Business Stock conditions include a holding period and company-level tests, and how a conversion affects them depends on the specific structure. Ask your counsel about this explicitly at the time of the flip rather than discovering it at exit.

Sources

Last reviewed August 23, 2026. 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.

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