Questions & answers

For a foreign investor, what are the pros and cons of general, limited and joint venture partnerships?

My firm is exploring a joint venture in the United States to expand our portfolio. Keeping in mind that we want to be involved, but with minimum risk, what are the different benefits when it comes to various company structures for foreign investors?


Answers
  • Lipeng He

    Ernst Young
    February 09, 2018

    On a very high level, investing in a US business through a partnership by a foreign investor may result in the foreign investor being subject to the "branch profit tax". That means the foreign investor will be considered having a US trade or business (a branch in the form of the partnership interest/activities). Income allocated by the partnership to the foreign investor will not only be subject to US federal income tax, but also will potentially be subject to a deemed dividend/withholding tax. Note certain income tax treaty may exempt the branch profit tax. In addition, under the new tax law, gain from the disposition of the partnership interest will be subject to US income tax as well. There will also be some extra compliance requirement for the foreign investors. On the other hand, investing through an LLC (elect to be treated as a c corp) or a C corp is another alternative. In that case, the US holding company will be subject to US federal income tax and dividend tax if there is a dividend (determined by the amount of E&P). Gain from disposition of the US holding company is not subject to US tax unless the US holding company is a land rich company.

  • Lu Zhang

    BPM (Burr Pilger Mayer)
    February 09, 2018

    It depends on the type of underlying investments, among other things.

  • Sheri Chromow

    SPC Advisors, LLC
    February 05, 2018

    When you are ready, you will need advice specific to your company and the working relationship you wish to have, you can get specific advice. A joint venture is an arrangement between two parties. It can take one of several forms. In a limited partnership, one partner is in charge, the general partner, and the other, shielded from liability, the limited partner. The limited partner has voting rights, generally for major decisions. My preferred vehicle is a limited liability company, for statutory protection for liability. Without knowing more, my responses are general. Please seek appropriate advice as you need to understand the pros and cons of each possibility in light of your goals and risk tolerance.

  • Ben Briggs

    Briggs Freeman Sotheby's International Realty
    January 19, 2018

    Excellent question. The general partner GP and limited partner LP are the two main roles most commonly seen in joint venture JV structures. The GP typically is the party with the most local knowledge in the project's market who will be in charge of day-to-day operations and strategy. The LP typically is the capital partner who typically brings less local expertise, but still has decision-making approval rights over certain key decisions in the project timeline, as defined by the JV agreement.