LLC for Non-US Residents
Many foreigners wonder whether they can open a limited liability company (LLC) in the United States. It is entirely possible, and many non-U.S. residents have done so.
There is no law that says that you have to have U.S. citizenship or a green card to start a U.S. LLC. Foreign business owners can register to open a U.S. company whether or not they are physically present in the country. A business owner can be a citizen of almost any nation in the world and still qualify to open an LLC.
Foreign business people who wish to open a U.S. LLC will face different rules and use different forms than American LLC owners. That's why it's a good idea to get an overview of the procedure before jumping in. Follow these 10 steps to get ready to launch your non-U.S. citizen LLC.
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1) Understand the Advantages of a Non-U.S. Resident LLC
Opening a U.S. LLC offers many commercial and practical advantages to a non-U.S. citizen that make this an attractive option. An LLC in the states provides a foreigner with access to the enormous U.S. market as well as to American venture capitalists and investors. In addition, having a U.S. base can increase a foreign company's reputation and credibility.
The same advantages that an LLC brings to American business owners also apply to LLCs owned by non-U.S. residents. Some of the most significant benefits include:
Personal liability protection. Anyone thinking of opening a business in the United States will have a variety of options. Perhaps the easiest course is to start as a sole proprietor since many states do not require registration, and all profits can go straight into your personal bank account. But operating as a sole proprietor also puts personal assets at risk since creditors can sue the owner personally for unpaid company debts.
A limited liability company is a form of business that offers the owner personal liability protection. The LLC is a separate legal entity and the owner cannot be sued for unpaid LLC obligations. Personal assets and bank accounts belonging to the owner cannot be attached or sold for LLC debts.
Pass-through taxation. Another type of business entity that offers personal liability protection is a corporation. A U.S. corporation is also considered a separate business entity and shields owners from being sued for business debts. However, the IRS taxes corporate profits both at the entity level (think corporate tax return) and at the individual level (individual tax return) for distributions.
While LLCs are like corporations in some ways, they do not have this type of double taxation. The entity does not file a business tax return and is essentially a disregarded entity by the IRS. Instead, the LLC distributes all profits to the owner or owners who pay taxes at the individual level. This is pass-through taxation.
Ownership flexibility. One person can own a limited liability company, termed a single-member LLC, but that is not required. An LLC can have any number of owners — called "members" — and these can include individuals, corporations, trusts, IRAs, other LLCs, and pension plans.
Management flexibility. The owner or owners of an LLC have many options when it comes to ways to manage the company. The members can manage it, they can hire a non-member manager, or they can set up a management structure with a board of directors and corporate executives.
Easy formation. Although not quite as simple to form as sole proprietorships, forming an LLC is not a complex endeavor. It consists of creating and filing a few documents. Note that states may require a somewhat longer procedure for non-US residents.
2) Figure Out if Your LLC has Non-Resident Alien Status
Clearly, an individual who is a citizen of the United States can open a regular LLC or other U.S. business in any state. But whether or not an individual is a non-resident alien is slightly more complicated. This is particularly important if you are trying to avoid paying U.S. taxes to the IRS.
One of the extra benefits available to non-resident LLCs is the possibility of avoiding paying any income taxes on their LLC business income. But this only works if they are residents of a country that does not tax individual income and they are not required to pay federal taxes in the United States. All members of an LLC must be non-resident aliens in order to avoid tax filing requirements with the IRS.
The IRS considers an individual a non-resident alien if they are not:
- A U.S. citizen,
- A permanent US resident with a green card, or
- Someone who owns a business that passes the “substantial presence test"
3) Pick the State for Non-U.S. LLC Formation
To open a non-resident U.S. LLC, you will need to pick a state in which to open the US business. Ideally, it's best to talk to a business attorney or consultant who is familiar with the laws in all 50 states plus the District of Colombia.
Keep in mind that each state has its own unique laws about forming, maintaining, owning, and managing an LLC. If your LLC is going to conduct business in one state, that is probably the state in which to form the company. If the LLC will not have a physical presence in any state, you'll want to figure out which laws work best for your enterprise. Some opt for a Wyoming LLC for its low LLC maintenance fees. Others prefer Nevada or Delaware LLCs for more privacy about the names of LLC members.
Your LLC will not need to have a physical address, but it will need to have a local registered agent whose address can serve as the company's mailing address in order to register the business. This will also be necessary to obtain a U.S. bank account.
4) Select an LLC Business Name
Some LLCs operate under the name of the owner, especially when the company only has one owner. However, most states also require that the words "limited liability company" or the abbreviation "LLC" are in the name. For example, if your name is Jean Robin, you could call your LLC Jean Robin Limited Liability Company.
Any name for an LLC that is not the legal name of one of the owners is termed a business name, fictitious name, or, most commonly, a "doing business as" or "DBA." When a business operates under a DBA, most states want to make sure that no other company is using the same DBA in that state. You'll need to locate and use that state's business search to determine if the potential name is free, then register it with the state.
5) Pick a Registered Agent for the Foreign Company
Most if not all states in this country require that every LLC organized in their jurisdiction must appoint a registered agent to receive all the important notices and legal documents for the company. Many foreign companies — lacking physical contact with the state — prefer to hire a registered agent service. The registered agent's role is an important one, so be sure to pick a reputable company.
6) Apply for an LLC Employer Identification Number
Every business entity operating in this country needs some kind of official identification for tax purposes, termed a tax ID. An individual U.S. citizen will have some type of individual taxpayer identification number like a Social Security number (SSN), but a non-U.S. citizen starting a foreign LLC will not. Therefore, the small business must obtain an employer identification number (EIN) from the IRS.
Anyone in the country can apply for an employer identification number on the website of the IRS. But if you are organizing the LLC from your home country, it's also possible to call, email, or fax the required form, IRS Form SS-4. The form asks for details of the new company like its DBA or business name and the mailing address of the registered agent. If for any reason you cannot apply for an EIN, a non-US resident can get a US Taxpayer Identification Number (ITIN) from the IRS.
7) Prepare Non-US Citizen LLC Formation Documents
After you have taken care of all of these preliminary steps, you can turn to preparing the formation documents for opening your LLC in your chosen state. Most states require that you prepare and file Articles of Organization, setting out basic information about the company. All require that you pay a filing fee. Some states require a physical business address (that is, a U.S. address) and some information about the members.
If you have a multi-member LLC, you should also prepare an Operating Agreement. This provides management and operating rules for the company and makes sure that all members are on the same page. Generally, you do not need to file these with the Secretary of State.
8) Open a U.S. Bank Account for the LLC
Once the formation is complete, it's time to open a business bank account in your state. These are important for receiving wire transfers and paying bills and invoices. A local bank account will also help with merchant accounts and payment processors.
Get Help Forming Your Non-U.S. Resident LLC
The directions for forming a foreign-owned LLC in the United States are straightforward, from getting an overview of the advantages of the business entity, to making central decisions about which state to use as a home base, to selecting a registered agent and completing formation documents. But in practice, you'll have to work through each step, one by one.
If you want to get help with this undertaking, you can use our online business formation service to set up your LLC.