Advantages of forming a Corporation:

Limited Liability

Like the shareholders of a corporation, the owners (called 'members') of an LLC have limited liability for business debts. If the LLC is properly structured and managed, each owner's personal assets will be protected from lawsuits and judgments against the business, so each owner's liability is limited to the amount each has invested in the company.
 

Pass-Through Taxation

If an LLC has only one owner, the Internal Revenue Service will automatically treat the LLC as a sole proprietor. Similarly, an LLC with multiple owners will, by default, be taxed as a partnership. Owners report their share of the profits and losses of the LLC on their personal tax returns, and no separate tax is assessed on the company itself. Note: If you want your LLC to be treated as a corporation that has to file its own corporate tax return, we can tell you how to file papers with the IRS to make it happen.

Citizenship
 

All owners of a Subchapter S Corporation ('S Corp') are required to be citizens or permanent residents of the United States. There is no such requirement for a general, or 'C,' corporation or for an LLC.

Management Flexibility
 

LLCs have much more management flexibility than corporations. Also, an LLC may be managed either directly by its owners or by a manager who may be one of the members or may be hired to run the business. Although an S corporation is limited to 100 owners, an LLC may have an unlimited number of owners.

Simple Recordkeeping
 

Unlike corporations, LLCs are not required to hold an annual meeting and draft meeting minutes. Note, however, that an LLC does need an operating agreement that will specify how and by whom the company will be managed, each owner's name, the amount of ownership interest held by each owner, and many other items.

Deductible Expenses

Similar to a corporation, normal business expenses like an owner's salary may be deducted from the profits of an LLC before the LLC's income is allocated to its owners for tax purposes.

Flexible Profit & Loss Allocations

Unlike a corporation, an LLC is not required to allocate profits and losses in proportion to ownership interest ("member interest"). This means that the owners of an LLC can agree to allocate the company's profits and losses among themselves however they see fit and not necessarily based on the percentage of the company each owner controls.

Frequently Asked Questions:
 

1. Are there any citizen or residency requirements in forming a business entity in the United States?
2. I am not based in the United States, what is the best entity to use for the formation and operation of my business in the United States?
3. After I form a business entity in the United States, what do I need to do in my home country?
4. Can nonresidents own shares in a United States S-Corporation and/or a C Corporation? Can nonresidents own an interest in a United States LLC?
5. Can a nonresident serve as an officer and/or director of a United States corporation, or as a manager of a United States LLC?
6. If I am a nonresident that formed a United States corporation or LLC, do I have to file a federal United States tax return?

1.   Are there any citizen or residency requirements in forming a business entity in the United States?  

Generally, an individual does not need to be a United States citizen or resident to form a business entity, such as a corporation or an LLC, in the United States. However, the entity generally is required to have a registered agent in the state in which it is formed, and in the states in which it owns property and/or conducts business. Also, as a result of owning an interest in a United States corporation or LLC, a foreign individual may be required to file tax returns in the United States and pay certain taxes.

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2.   I am not based in the United States, what is the best entity to use for the formation and operation of my business in the United States? 

Choosing the best entity to own assets and/or operate any business, is typically dependent on the particular circumstances involved, such as the size and nature of the company's business, and the number of owners or members and their respective rights and obligations. Although forming and properly maintaining either an LLC or a corporation can help protect you from liability with regard to the operation of the business, we find that many of our customers choose an LLC to operate their business. An LLC can offer more flexibility in how the owners can manage the company, and may not require some of the typical formalities of a corporation, such as annual meetings of stockholders. For example, the owners of the LLC can expressly set forth and/or limit the rights, powers and obligations of the LLC's managers and members. Essentially, LLCs are contractual in nature, and therefore, the owners have broad "freedom of contract" in connection with how the entity will be managed and how profits will be allocated and/or distributed. An LLC also may have tax advantages over a corporation with respect to United States federal and/or state taxes. For example, an LLC with only one owner may not have to file a separate United States federal tax return and its profit or loss can be included on the owner's United States federal tax filing. In contrast, a corporation must file a separate United States federal tax return.

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3.   After I form a business entity in the United States, what do I need to do in my home country? 

The reporting and/or filing requirements, if any, in an individual's home country will depend on the laws of that country. Therefore, it is advisable to consult the laws of your home country to determine the obligations resulting from the formation and ownership of the business entity in the United States.

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4.   Can nonresidents own shares in a United States S-Corporation and/or a C Corporation? Can nonresidents own an interest in a United States LLC? 

A nonresident alien may not be a stockholder of a U.S. S-Corporation. Generally, there is no restriction on who may own shares in a U.S. C corporation or own an interest in a U.S. LLC.

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5.   Can a nonresident serve as an officer and/or director of a United States corporation, or as a manager of a United States LLC? 

A nonresident may serve as a corporate officer or director of a U.S. corporation, or as a manager of a U.S. LLC.

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6.   If I am a nonresident that formed a United States corporation or LLC, do I have to file a federal United States tax return? 

The mere ownership by a nonresident of stock of a United States corporation typically does not create individual filing obligations. However, a nonresident may be subject to U.S. Federal income tax on dividends (or other distributions) paid to him or her by the corporation. It is important to note, however, that the corporation will need to file a federal tax return. United States LLCs typically do not pay taxes directly, but may be required to file tax returns.

The earnings and/or losses of an LLC are allocated to the members (who each receive a form K-1 from the entity), and the members are required to report such income or losses on their individual tax returns and pay applicable taxes.  As a result, the members may have filing obligations and incur individual United States tax obligations due to their ownership of an interest in the LLC. To the extent that a nonresident is required to file a United States federal tax return, he or she will most likely also be required to file a tax return in one or more states.

In light of the numerous potential filing requirements and other obligations associated with forming, operating, and/or owning an interest in, a United States corporation or LLC, it is advisable to seek the advice of a qualified accountant to provide assistance with regard to all tax matters.

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