The best company structure for an API business.

An API business sells a service to developers, not a physical product. Your customers integrate your code, and you often bill them based on usage. This creates specific needs. First, you need a credible US entity. Developers are entrusting part of their stack to you. A US company with a US address signals stability and legitimacy, making it easier to win their trust and for their procurement teams to approve your service. A Delaware or Wyoming LLC is a standard, recognised vehicle.

Second, you need to handle payments efficiently. This means programmatic, usage-based billing and payouts. The best tools for this, like Stripe, are most accessible to US-domiciled entities. A US LLC with a US Employer Identification Number (EIN) can apply for a US Stripe account, which offers better pricing, features, and settlement times for USD-denominated revenue. It also simplifies providing W-9s to US customers, who will expect them.

Finally, the structure must be simple to maintain. As a founder outside the US, you do not want complex annual reporting or high maintenance costs. A single-member LLC has straightforward compliance, primarily an annual report to the state and a specific informational filing to the IRS, which we will cover later.

A single-member LLC (SMLLC) formed in a state like Wyoming or Delaware provides a distinct US legal personality for your API business. This separation of the business from you, the owner, is crucial. It is this entity, not you personally, that enters into contracts with customers, opens a bank account, and gets a Stripe account. For US customers, this is standard. They are contracting with a US entity, which simplifies their own compliance and legal processes.

The structure is a means to an end. The commercial goal is to access US-facing financial infrastructure. The LLC, with its formation documents and federal EIN, is the key that unlocks applications for US business bank accounts and payment processors. These services are often unavailable to non-US entities or are offered with worse terms and higher fees.

However, it is important to be clear about what an LLC does not do. It is not a method for avoiding taxes in your home country. You are still required to report your income and pay taxes according to your local laws. It also does not make a high-risk business model low-risk. Banking is never guaranteed; it depends on a risk assessment by the financial institution.

A key reason the single-member LLC is so effective for non-US founders is its tax treatment. By default, the IRS treats a single-member LLC as a 'disregarded entity'. This means the LLC itself does not pay US federal income tax. Instead, the tax responsibility passes through to the owner.

For a non-US owner, the question becomes whether their income is subject to US tax. This generally depends on two things: whether the income is US-sourced, and whether the owner is 'engaged in a trade or business in the United States' (ETBUS). For many API businesses operated entirely from outside the US, with no US office, staff, or dependent agents, the income may not be considered ETBUS. If you are not ETBUS, you may not have a US federal income tax liability. This is a complex area dependent on your specific facts and must be confirmed with a qualified US tax adviser.

Even if no tax is due, there is a critical filing requirement. A foreign-owned disregarded entity LLC must file Form 5472 and a pro forma Form 1120 with the IRS annually to report transactions with its foreign owner. The penalty for failing to file or filing late is a significant $25,000, so this is not an optional step.

For an online API business with no physical US presence, the choice of state usually comes down to Wyoming or Delaware. Both are respected, business-friendly jurisdictions with established corporate law and efficient filing systems. Neither state has a state-level corporate income tax, which is an important consideration, although for a disregarded entity owned by a non-US person who is not ETBUS, this is less of a direct factor.

Wyoming is often preferred for its simplicity and lower annual costs. The annual report fee is minimal and the process is straightforward. It offers strong privacy protections, as owner information is not required to be listed on the public state registry, which can be a comfort for founders. This has made it a popular choice for online businesses and holding companies.

Delaware has a more formal reputation and a highly developed body of corporate case law, the Court of Chancery. This makes it the default choice for businesses intending to raise venture capital. If you plan to seek funding from US VCs, they will almost certainly expect a Delaware C-Corporation, and starting as a Delaware LLC can make that future conversion slightly simpler. For a bootstrapped API business, however, the higher annual franchise tax and registered agent fees in Delaware mean Wyoming is often the more practical and cost-effective choice.

A US LLC is your entry ticket to the US financial system. Without it, you are reliant on services like Payoneer or Wise to receive USD, often into an account not in your company's name, or you face declines from processors like Stripe. Once your LLC is formed and you have an EIN, you can apply for a US business bank account. These accounts can be with traditional banks, though they often require an in-person visit, or more commonly with US fintech platforms that provide accounts fronted by community banks.

This US bank account, held in the name of your LLC, allows you to receive ACH and wire transfers from US customers natively. When a US client wants to pay an invoice, they see a standard US bank account, which inspires confidence. More critically, holding a US entity and US bank account makes you eligible for a US Stripe or Shopify Payments account. This is the primary goal for many API businesses. A US Stripe account can mean lower processing fees, faster settlement of funds (two days versus seven or more for some international accounts), and access to a wider range of features like Radar and advanced fraud protection, which are essential for managing a usage-based billing model.

When you apply for a bank account or payment processor, a compliance underwriter assesses your business. For an API business, they focus on specific risks. First is the nature of the service. Who are your customers, and what are they using your API for? An API that provides weather data is low risk. An API that could be used for spam, scraping, or facilitating high-risk activities will face intense scrutiny or outright rejection.

Second, they examine your billing model. Usage-based billing can create rapid swings in volume. A sudden spike in processing can look like fraud or money laundering to an automated system. You must have clear, transparent pricing published on your website that explains your billing logic. Underwriters will check your site to ensure it looks professional, has clear terms of service and a privacy policy, and accurately describes what your API does. They need to see a legitimate, operational business.

Third, they look at your own risk management. How do you handle disputes and chargebacks? Developer customers are generally low-risk for chargebacks compared to retail consumers, but disputes can still arise over billing calculations. Having clear documentation and a responsive support process is important. Be prepared to explain your business model clearly and concisely.

Wyoming and Delaware are the default choices for most non-US founders, including those running API businesses. The practical differences are subtle but meaningful.

Wyoming offers lower initial and ongoing costs. Its annual report fee is a modest $60, and registered agent services are competitively priced. Its main advantage for a bootstrapped API business is privacy; the public record does not list founder or owner details. This can be useful in the early stages. However, some compliance teams at more conservative financial institutions may perceive a Wyoming filing as a slight risk flag, occasionally leading to more questions during onboarding.

Delaware projects a more established image. Its corporate case law is the US standard, which is irrelevant for a single-member LLC but contributes to its strong reputation. This can be a marginal plus for API businesses seeking enterprise clients or venture capital later. The tradeoff is cost and privacy. The annual franchise tax is $300, and registered agents typically charge more. Founder details are not public, but are not as shielded as in Wyoming.

Florida is a less common choice. While it has no state income tax, its filing and annual report fees are higher than Wyoming's and it offers less privacy. For an API business, it typically creates a perception of US nexus without offering the reputational benefits of Delaware or the cost and privacy advantages of Wyoming.

Payment processors apply different standards to foreign-owned US LLCs running API businesses. Understanding their quirks is key.

Stripe is the most common choice for API companies due to its developer-friendly tools. Onboarding requires your LLC formation certificate, EIN confirmation letter (CP 575), and personal ID. Stripe is sensitive to sudden, large spikes in transaction volume, a common pattern for usage-based API billing. This can trigger a manual review or a rolling reserve, where a percentage of your payout is held for 30-90 days to cover potential refunds or disputes. Clear documentation and proactive communication about your billing model can mitigate this.

PayPal and its Braintree subsidiary are also options. They are often stricter with documentation, sometimes requesting proof of a US address or phone number, which can be a hurdle. Their risk models can be less tolerant of the rapid scaling typical for successful API products, leading to account limitations or holds while they review your activity. For this reason, many API founders use them as a secondary, not primary, processor.

Direct merchant accounts via gateways like Authorize.net are an alternative, usually connected to a US business bank account. These are harder to secure for non-resident founders and involve more rigorous underwriting. The provider will scrutinise your business model, terms of service, and billing logic to ensure clarity for your developer customers and to guard against chargebacks from unexpected usage fees.

Setting up your US LLC and getting paid involves several stages with specific third-party costs and potential delays.

First, filing the LLC. A Wyoming filing fee is approximately $100. Expect to pay a third-party registered agent between $100 and $250 annually for their required service. Next is the EIN application with the IRS. For non-US residents without a Social Security Number, this is the main bottleneck. The process is manual and can take anywhere from 4 to 8 weeks to receive your EIN confirmation letter by mail. This letter is non-negotiable for opening US financial accounts and connecting to most payment processors.

Week 1-2: Your LLC is filed. Week 3-8: Wait for the EIN confirmation. Once the EIN is secured, you can apply for a US business account. This can take a few days to a week. Concurrently, you can apply to Stripe or another processor. Onboarding and verification might take another 2-5 business days. The first payout from Stripe is typically held for 7-14 days. Therefore, a realistic timeline from LLC filing to your first settled payout hitting your bank account is 6 to 11 weeks. For API businesses, delays often occur if your pricing model is unclear on your website, prompting questions from processor compliance teams.

The process is sequential. First, we form the LLC in your chosen state, typically Wyoming. This involves drafting and filing the Articles of Organization and securing a registered agent. This state-level filing usually takes a few business days. Once the LLC is approved, we immediately apply for your Employer Identification Number (EIN) with the IRS. As of late 2023, the processing time for EINs for foreign-owned LLCs has been several weeks, and this is the longest waiting period in the sequence. There is no reliable way to expedite this.

While the EIN is pending, we prepare your banking and payment processing applications. We assemble the required documentation: the filed Articles of Organization, your passport, proof of address, and a clear description of your API business and billing model. Once the EIN is issued, we can submit these applications. Approval from financial institutions can take anywhere from a few days to a few weeks, depending on their own internal queues and risk review processes.

Xavion manages this entire workflow. We handle the state filing, the EIN application, and the preparation and submission of your financial applications. We position your business to have the highest probability of success by ensuring the application is complete, professional, and clearly explains your specific business model to underwriters. You can monitor the status of each step through our client portal and begin your journey at xavioncapital.com/start.