Can a Foreigner Be a Partner (Or a Member) in an LLC?
If you’re a non-US resident interested in owning a business in the United States, you need to understand the requirements and what it means. The US is one of the world’s most powerful economies, and having a share of it can excite anyone. A Limited Liability Company (LLC) is a business structure preferred by most business owners for its benefits (like protection, limited liability, separation of assets and finances). An LLC combines a corporation and a partnership, making it an excellent option for foreign investors in the US.
But can a foreigner be a partner (or a member) in an LLC? YES. A foreigner can be a partner or member of an LLC.
However, are there specific qualifications for a foreigner to become a partner or member of an LLC? What documents do you have to produce to become an eligible US investor? If these questions are ringing in your mind, keep reading this guide to find the answers and more information about investing in the US.
What is an LLC?
An LLC is a registered business entity separate from its owner (s) or members who are not liable for its debts. Most investors prefer the business structure because it comes with various benefits:
- Flexibility in ownership and management
- Tax benefits
- Personal liability protection
- Business Credibility
For the best understanding of an LLC, it combines the simplicity and flexibility of a sole proprietorship and offers limited liability protection from corporations. LLCs can have a single or various members, including foreigners.
Unlike other business entities, LLCs can elect how they want to be taxed: as a corporation, where you pay corporation tax, or as a disregarded entity (sole proprietorship). However, if an LLC decides to be taxed as such, it’s a pass-through entity, meaning the tax burden is passed on to the owners. The profits LLCs earn are passed on to the partners who file them as personal income for tax purposes. As a result, LLC members save by avoiding double taxation.
Who Qualifies to Be an LLC Member?
According to the Internal Revenue Service (IRS), LLC ownership isn’t restricted to certain people. Members of a US-based LLC can either of the following entities as long as they fulfill the required steps to qualify. They include:
- Individuals
- Other LLCs
- Corporations
- Foreigners
Residents and non-residents can be LLC members; there’s no limit to how many members can own the business.
Foreigner as an LLC Partner or Member
When forming an LLC, it’s crucial to determine who the company’s partners or members will be. The business entity can be formed by one or more US citizens or residents; foreigners can also take the same positions. Generally, there are no legal requirements for LLC owners to be only US citizens.
Non-US citizens must meet the requirements of US citizens to become LLC partners. These requirements include providing a valid tax identification number and passing any necessary background checks.
However, even with the openness for foreign nationals to become LLC members in the US, there are things to weigh and consider before inviting them. For instance, it may be challenging for aliens to get the tax identification number needed to form an LLC. Sometimes, the IRS might require the LLC to withhold taxes on the foreign member’s income and report it.
So, before you enlist foreigners to become partners in an LLC, it’s vital to consult a legal professional for guidance and then make the best decision for the business. Speaking to a legal consultant can be helpful as they can assist you in navigating legal hurdles to remain compliant with the law. Ultimately, involving a foreign national in your business, meticulous planning, and execution can be valuable in an LLC.
What to Consider for Foreigners to Become LLC Members
Although many people think being a US citizen is a requirement to become an LLC member, it’s far from the truth. US citizenship isn’t a requirement for aliens to become LLC partners. However, there are special considerations for all foreign partners to keep in mind, and they include the following:
1. Get a Social Security Number (SSN)
An individual Tax Identification Number (ITIN) or SSN is necessary for any foreigner or US citizen who wishes to become an LLC partner. The IRS uses the tax ID to identify taxpayers. The profits from an LLC must be filed as personal income and reported by each LLC member in their tax returns, like other US citizens. Before applying for a tax ID, contact a tax professional experienced in handling foreign investors for guidance.
2. No Tax Election for S Corporation
LLCs have the chance to elect how they should be taxed. Some can choose to be taxed as an S corp to reduce the amount of taxes they pay. However, this offer is only available for LLCs owned by US citizens. LLCs with alien owners can’t elect to be taxed as S corps.
3. Requirements for Professional Certification
If your LLC is professional, you must be certified in the US to offer the services. For instance, if your LLC runs a physician business, all partners must have a US-based medical certification. Depending on the state the business is located, the requirements might vary. So, check with the state your business is registered with to ensure you comply with state guidelines and requirements.
4. Get a US Visa
As a foreigner about to become a partner in a US-based LLC, you need the correct visa to enter the United States for business operations. The country offers different visas for varying purposes, and the type you acquire depends on the nature or kind of involvement you have in the LLC.
A business visa (B-1 visa) is appropriate for a foreign partner visiting the United States for business operations. An E-2 (treaty investor) visa is suitable for a foreign partner planning to invest large sums in a US business.
5. Draft an Operating Agreement
An operating agreement is vital for any LLC, especially an entity with foreign investors.
What is an operating agreement? An operating agreement is a legal document that outlines business agreements in an LLC. The document outlines the business structure, decision-making process, management, and operating procedures of the LLC.
It’s an invaluable document that lays out the company’s daily operations, who should do what, and how the business should be run. Generally, an operating agreement is akin to a contract that binds LLC members; once they sign the document, all partners must adhere to its details to the T.
So, what does an operating agreement contain? An LLC’s operating agreement contains the following:
- Company ownership is shared value or percentage
- Power bestowed on managers, members, and duties
- Dispensation of profits and losses
- Member duties and benefits
- How to hold board member meetings
- The process of admitting new members
- Member voting rights
- Ownership transitions - buyout and sellout procedures
- Tax considerations
- Transfer arrangements
Think of an operating agreement as a how-to guide to running a business. Managing a business that multiple people own can be daunting. However, with an operating document, every member knows their duties and responsibilities, minimizing conflicts.
The operating agreement is highly beneficial, but it should be drawn to leave room for flexibility so that it functions well for the LLC. It should address any special considerations about associating with foreign partners—some of the issues to consider include taxes, language barriers, and visas.
Tax Implications for Non-US Citizens
Being an LLC member in the US means you must pay taxes on any profits your business earns in the US. The requirement is specific to LLCs that operate in the United States or are “engaged in a trade or business in the United States.” Here’s what it means:
- Filing tax returns and forms with the IRS and where your business operates. The relevant forms include Form 5472, which returns information on foreign-owned US or foreign corporations trading in the US.
- Remitting taxes on revenue amassed in the US may include federal. State, and other taxes.
- Paying taxes quarterly four as per the US revenue earning - estimated taxes, expected and actual income.
- Regularly evaluate business treaties between the US and their home country especially regarding taxes. Keep track of current agreements to ensure no double taxation and remain compliant.
These guidelines can vary in different states, and there can also be exceptions. Therefore, you need to check with an accountant to ensure you comply.
Frequently Asked Questions
Can a non-US citizen become a member of a US-based LLC?
Typically, there’s no rule or limitation regarding who can become a member or partner in a US-based LLC. The provision means that non-US citizens can create or be members of US-based LLCs. US citizenship isn’t necessary or a requirement as long as the interested party fulfills all requirements in the state of incorporation.
Can a non-US citizen who owns an LLC get a visa?
As a foreigner who owns an LLC, you should get the appropriate visa. However, you first need to obtain a tax ID to pay taxes on the income you accrue in the US. There are different types of visas, and you should ensure you obtain the appropriate one for your business operations.
Can a foreign corporation become a partner in the US?
A foreign corporation can become a partner in the US. There are no restrictions as to who can become a partner, including a corporation. Most US states don’t restrict corporation ownership, whether a foreigner or a US citizen. Plus, there’s no limit as to how many members can own a corporation or LLC.
Which visa is easy to obtain in the USA?
The easiest visa to obtain in the US for anyone who wants to enter the United States is a non-immigrant visa if you’re visiting the US temporarily. However, if you intend to move to the US permanently, you get an immigrant visa.
Why is an operating agreement vital for a business?
An operating agreement is a legal document that each LLC member must abide by as it outlines the company’s status and how to manage the business. The document is like a guide that tells every member about their roles, responsibilities, and how to mitigate difficult situations in an LLC. It’s not uncommon for LLC members to have disagreements, and the operating agreement should have provisions for such situations.
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In Summary
Can a partner be a member of an LLC? A foreigner can become a member of an LLC in the US, but the process needs a lot of administration. Failure to adhere to tax regulations or ticking the right boxes, the IRS, will make your operations in the US unbearable.
With that in mind, you know where to begin as a foreigner if you want to become a partner in an LLC. Follow the proper process, provide all relevant documents, explore one of the world’s robust economies and take one step at a time. Kindly contact one of our experts here if you have any question on LLC.
