The best company structure for an online marketplace.

An online marketplace connects buyers with third-party sellers. Its primary function is to facilitate transactions, and its revenue model is typically commission-based. This creates specific structural needs. First, the business needs a credible corporate entity to contract with both sellers and payment processors. A US LLC projects stability and is a familiar counterparty for US-based partners and customers.

Second, and most critically, the structure must accommodate the flow of funds. The marketplace may operate as the merchant of record, or it may use a platform like Stripe Connect to split payments and route funds directly to sellers. Either way, it needs a US entity with a US bank account to receive customer payments, hold funds temporarily, and pay out to sellers globally. Access to US ACH, wires, and payment processors like Stripe is not a nice-to-have; it is fundamental to the business model. Without a US entity, obtaining this infrastructure is nearly impossible for a foreign founder, blocking access to the world’s largest consumer market.

A single-member LLC owned by a non-US person is typically treated as a "disregarded entity" for US tax purposes. This means the LLC itself is not a taxpayer. Instead, the tax obligations flow through to the owner. This simplicity is its core strength. It avoids the complexity and expense of US corporate taxation (Form 1120-F) that would apply to a US C Corporation, making it a cost-effective choice for many foreign founders.

Commercially, the LLC provides a formal US presence, an EIN, and the limited liability protection its name implies, separating your personal assets from the business. However, its limitations are important. It does not erase your tax obligations in your country of residence; you are still required to report your income according to your local laws. It does not make a high-risk business model low-risk in the eyes of a bank. Crucially, it is not a silver bullet for banking. While it is a necessary condition for access to US financial institutions, it is not sufficient on its own. The business must still pass underwriting.

For a foreign-owned, single-member LLC treated as a disregarded entity, the US tax question hinges on two concepts: whether the income is "US-sourced" and whether the owner is "engaged in a trade or business in the United States" (ETBUS). For many purely online marketplaces operated by a founder abroad with no US staff, office, or dependent agents, the income may not be considered ETBUS. If the business is not ETBUS, its non-US owner generally does not owe US federal income tax on its active business income. This is a key reason the structure is so popular.

However, this determination depends entirely on the specific facts and circumstances of the business and must be confirmed with a qualified US tax adviser. It is not a given. Furthermore, since 2017, all foreign-owned single-member LLCs have a mandatory annual filing requirement with the IRS: Form 5472, filed alongside a pro forma Form 1120. This is an information return, not a tax return, but the penalty for failing to file or filing late is a significant $25,000. This is a serious compliance obligation that must not be missed.

For most non-US founders of online marketplaces, a Wyoming LLC is the default choice. Wyoming offers strong privacy protection, low annual fees, and a straightforward formation process. Unlike Delaware, it does not have a separate franchise tax. For a simple, foreign-owned business that does not intend to seek US venture capital, Wyoming provides everything needed with minimal administrative burden. Its corporate statutes are modern and well-regarded.

Delaware is the standard for US businesses planning to raise venture capital. Its corporate law is the most developed in the US, and its Court of Chancery is a highly sophisticated venue for resolving corporate disputes. Investors prefer it for these reasons. However, for a bootstrapped online marketplace owned by a single foreign founder, these advantages are largely irrelevant. The additional complexity and cost of a Delaware LLC, including the annual franchise tax, are often unnecessary. For this specific business model, Wyoming usually represents the more efficient and cost-effective starting point. The decision is not permanent; an entity can be moved to Delaware later if the business strategy changes to include US investors.

A US LLC with an EIN is the key to the US financial ecosystem. Payment processors like Stripe and Shopify Payments generally require a business entity in one of their supported countries. For a founder outside these countries, a US LLC satisfies this rule, allowing the marketplace to act as the merchant of record. This is a non-negotiable step to process payments from US customers.

Beyond payment processing, a US entity allows you to apply for a US business bank account. This is critical for managing cash flow. It provides a destination for processor payouts in USD, avoiding forced currency conversions from platforms like PayPal or Amazon. It enables you to pay US-based sellers or suppliers via domestic ACH, which is cheaper and faster than international wires. Holding a USD balance in a US account also hedges against currency fluctuation. For marketplaces using a split-payment model like Stripe Connect, a US entity and bank account are foundational requirements for onboarding and managing seller payouts. Without them, the operational complexity and cost of running the platform increase dramatically.

When a financial institution underwrites an online marketplace, its primary concern is managing the risk of money transmission. If you are holding seller funds in your own account before forwarding them, you may be engaging in unlicensed money services business (MSB) activity, which is a major red flag for any bank. Your business model must be structured to avoid this. Using a platform like Stripe Connect, which programmatically splits payments between you and the sellers, is a standard way to mitigate this risk. The funds flow through the platform

Wyoming and Delaware are the standard choices for foreign-owned marketplace LLCs, but they serve different risk postures. Wyoming's low annual fees ($62 from 2025) and strong privacy shield your personal details from public record, which is useful when your supplier or customer base might search for them. However, some payment processors and banking partners associate Wyoming with high-risk models and apply greater scrutiny. Its fit is strongest for marketplaces with low-risk seller activity.

Delaware carries a higher annual cost (a $300 franchise tax) but is perceived as the gold standard for US entities. For a marketplace, this can ease underwriter concerns, particularly if your model involves holding seller funds, even temporarily. The state's Court of Chancery is the premier US venue for corporate legal disputes, a factor that matters if you anticipate complex contracts or equity investment. Florida has gained recent popularity for its low costs and simple compliance. However, it offers no corporate income tax advantage for this model over other states, and its privacy is weaker than Wyoming's. Its primary appeal is for founders with a personal connection to the state, which can sometimes raise nexus questions.

Stripe, through its Connect product, is the most common path for marketplaces. It manages seller onboarding, identity verification (KYC), and payouts, which keeps your LLC out of the money transmission chain. To approve a foreign-owned US LLC, Stripe will require the company's formation certificate, EIN confirmation letter (CP 575), and the personal details of the ultimate beneficial owner. A reserve may be placed on your account, typically 5-10% of volume for 30-90 days, if your sellers are in high-chargeback industries or your payout model is unusual.

PayPal and Shopify Payments can also support marketplaces, but often with stricter onboarding for non-US owners. They will scrutinise your marketplace's terms of service, particularly your refund and dispute resolution policies. They need to see that the LLC, not the individual founder, is the contracting party. Amazon and Etsy marketplaces are distinct in that they are the merchant of record; your LLC acts as a seller on their platform. They require your EIN and US bank account details for payouts, and will suspend payments if your LLC's name does not exactly match the details on your bank statement.

Third-party costs are predictable. State filing fees are a one-time expense, around $100 in Wyoming or $90 in Delaware. Annual costs include the registered agent service, typically $100-$200 per year, and the state's annual report or franchise tax ($62 in Wyoming from 2025, $300 in Delaware). The EIN application is free, but processing for non-US citizens without a Social Security Number can take up to 15 weeks.

A realistic timeline starts with LLC formation, which takes 1-5 business days. The longest wait is for the EIN. Only after the EIN is issued can you apply for a US business bank account, which can take another 1-3 weeks for approval and onboarding. Concurrently, you can build your site, but payment processor applications cannot be finalised without a valid EIN and a US business account to receive payouts. The most common delay for marketplaces is the processor underwriting stage. An application can stall for weeks if the underwriter cannot understand your seller vetting process, your fund flow, or your dispute management procedure. From filing your LLC to receiving your first customer payout often takes 4-6 months.

First, the US LLC is formed in your chosen state, typically Wyoming. This step, including the preparation of the Articles of Organization and Operating Agreement, usually takes 3-5 business days. Once the LLC is registered, the next step is to obtain an Employer Identification Number (EIN) from the IRS. For a non-US founder without a US Social Security Number, this process involves filing Form SS-4 via fax. The current IRS processing time for this can range from 20 to 40 business days. The EIN is essential; no bank accounts can be opened without it.

With the formation documents and EIN in hand, Xavion begins the placement process. We package your application, including your business model, seller onboarding policies, and compliance framework, and present it to institutions in our network that have an appetite for your specific model. This stage involves significant back-and-forth with compliance teams and can take anywhere from 2 to 6 weeks. The total timeline from starting the company formation to having an open account is realistically 2 to 4 months. It is a marathon, not a sprint, and requires patience.