Questions & answers

What is important to consider when forming an LLC with a foreign investor partner?

I'd like to set up a Limited Liability Company with four partners: One is a U.S. citizen (myself) and three are foreign citizens. I've heard that setting up a trust under the U.S. citizen's name and then transferring funds into the LLC may be a good option. Are there any potential pitfalls here considering that a few of the LLC partners are foreign?


Answers
  • Sheri Chromow

    SPC Advisors, LLC
    February 13, 2018

    Before anyone can give you specific answers, they need to understand a lot more. Are you contributing cash or assets? Is the point of the trust to add a layer of insulation? Do you know about the foreign citizens who want to be your partners? Who will manage the US operation? With foreign partners, you need competent counsel to check whether the money has been transferred from the off-shore jurisdiction with any required consents in place. How did you pick your prospective partners? What do you know about them? Are the others from the same jurisdiction? If so, achieving the most advantageous tax structure will be simpler than accommodating the rules of multiple jurisdictions. Your advisor will need to know all of the facts to be helpful to you.

  • Lucy Lee

    Akin Gump Strauss Hauer & Feld LLP
    February 01, 2018

    Are you proposing to establish a trust for your benefit and investing into the fund through the trust? Effective of this planning would depend on how the trust is set up. Or are you planning to establish a trust which can be an estate blocker for the foreign investors in case of any U.S. situs assets/investments held by the LLC? In this case, the foreign investor would become beneficiaries but this type of arrangement is generally treated as a corporation for tax purpose, not as a trust. There is also strategic planning we do with foreign investors which is a way to bring funds into the U.S. without local tax issues and making gifts of the funds without incurring a U.S. tax charge.

  • Jeffrey Jahns

    Seyfarth Shaw LLP Real Estate Group
    February 01, 2018

    A primary consideration would be a surviving entity's/partner's liability for unpaid income taxes of a departed partner. This issue is all the more acute if the departed partner is foreign and therefore not easy to reach for payment.

  • Daniel Lu

    Daniel Lu CPA
    February 01, 2018

    LLC by default is considered as a "partnership" for federal tax purpose. In a partnership, all the foreign partners are required to file an annual U.S. tax return. The partnership is required to perform a quarterly assessment and withholding for the foreign partners (IRC 1446).