Investors, QSBS, and Foreign Entities
I am not a tax lawyer, but one important consideration for U.S. investors is the potential availability of Qualified Small Business Stock (QSBS) benefits.
In general, if a U.S. taxpayer invests in a foreign company—such as an Israeli or Indian entity—that investment will not qualify for QSBS treatment. To be eligible for the potentially significant QSBS tax exemption, the investment generally must be made in a U.S. C corporation.
For that reason, founders who expect to raise capital from U.S. investors often choose to incorporate a Delaware C corporation. Doing so can make the company’s structure more attractive to investors who want to preserve the possibility of QSBS benefits.