1. Who Can Own an LLC?
2. Does an LLC Have to File an Articles of Organization?
3. What Is Required to Open a Startup?
4. Are Withholding Rules Rigorous?

Updated July 6, 2020:

Can a foreigner be a partner in an LLC? Yes, they can. A small business owner, also known as a member, can operate under the structure of a limited liability company, LLC, and reap the same tax benefits as a sole proprietorship. This includes the benefit provided by limited liability protection, which is designed to separate and protect the member's assets from the debts and losses of the LLC. Any ownership stakes a member invests within an LLC is called membership interest.

An LLC's operating agreement will specify the percentage each member owns. This is unlike corporations, which most states require identifying a par value of the issued stock when incorporating the company. LLC owners do not have the freedom of transferring the ownership interest, although some states allow ownership interest to be transferred with the unanimous consent of all other owners/members.

Who Can Own an LLC?

Within the United States, the following can own an LLC:

  • Residents.
  • Non-resident aliens.
  • Foreign persons and entities.

Arizona and most other states do not limit the number of members or place restrictions on who can take ownership of an LLC. When an LLC has a sole owner, it is considered a single-member LLC, and if it has more than one member, it is referred to as a multi-member LLC. For instance, an LLC could operate with 30 foreign members or just one member.

Does an LLC Have to File an Articles of Organization?

At formation, the owner(s) or a registered agent is responsible for filing the Articles of Organization in the state where the LLC will be located. The Articles of Organization is filed with the Secretary of State and requires that certain information is included, but owners may provide as many additional details as they wish to include in the articles. The names of all owners/members and their startup contributions are to be included, along with the LLC business address, statement of liability, and management information.

What Is Required to Open a Startup?

States will vary in what is required in the process of a startup. For example, New York requires all new LLCs to publish their information in local newspapers, and Louisiana law requires signatures on startup forms to be notarized. An LLC operating with a foreign partner has certain reporting requirements for tax purposes. The LLC will withhold taxes on the distributive income of the foreign partner since the income is connected with a US trade or business.

An individual 1040 Non Resident tax return will then be filed by the tax partner. The withheld tax is used as an offset for any further payment after computing the tax due. In the event that the partnership held out more than owed, the foreign partner will then receive a refund for overpayment. Taxes paid in can often offset any taxes due in the individual's home country.

The foreign partner's home country will determine how the individual is taxed in relation to the LLC. Foreign countries will vary in if they see the LLC as the tax-paying entry or the individual as the tax-paying entity. This can lead to double taxation if the home country doesn't recognize the money from the 1040 Non Resident tax return as an offset for taxes owed in the home country.

By having the foreign partner invest in a corporation, called a C corporation, in a particular state in the US, the issue can be offset as the C corporation can then hold the foreign partnership's interest.

The foreign partner must file an income tax return in order to claim the refund and must have a valid tax identification number, TIN. Without a TIN, the foreign partner risks losing out on a tax refund, and the LLC partnership must still pay the withholding tax for that foreign partner.

A partner's TIN could possibly be the US employer identification number, EIN, or could also be the individual's social security number, SSN. The individual taxpayer identification number will always start with the number nine, and include two middle digits that range from 70 to 80.

Are Withholding Rules Rigorous?

Withholding rules are very rigorous and will depend on the status of the partner and the type of income earned by the partnership. The foreign partner will receive an 8805 Form every year by the partnership. This form is going to reflect effectively connected income, ECI, and the total tax credit allocable to the foreign partner for the tax year.

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