If you decide to start a business in the United States, you can organize the business without regard to the citizenship of the business owner and choose from a range of legal entities. When companies from overseas create a business, the most commonly-used type of entity is a business corporation, but is that always the right choice? Here’s what you should know about the most common business entities for foreign-owned businesses.
Corporation (or Business Corporation)
This entity is similar to limited liability enterprises in other countries, and it’s the most common type of business in the United States. In this entity, corporations are governed by state law and ownership is represented by shares that are issued by the corporation. Corporations in some areas can choose to be treated as a partnership, which is called an S corporation.
Limited Liability Company
This is another popular choice for foreign-owned businesses, and LLCs have a lot of overlap with corporations and partnerships. These companies operate under state law, but they are not subject to income tax in most cases. You should note that if the owner of the LLC is a foreign company, it could lead to tax disadvantages.
Partnership
For US-owned companies and foreign-owned businesses, partnerships are formed by a contract and subject to state law. They are typically not subject to income tax but require the partners to pay federal and state income tax in accordance with their partnership interest. You can form both a general partnership and a limited partnership.
Branch Operations
Foreign-owned businesses can create unincorporated branches in the US, and legal liability would go through the parent corporation. Even though this is possible, it lacks the legal and tax advantages of other options like a corporation or partnership.
Contractual Joint Ventures
This type of business for foreign-owned businesses is fairly specific in how it is used. Typically, joint ventures are formed for a specific, limited purpose, like a one-time exploration or construction project.
Holding Companies
Holding companies are formed so that individuals or foreign-owned businesses can own the securities and stock of other legal companies. Holding companies allow you to spend a certain amount on searching for a starting a new business that can be deducted from current or future profits.
If you aren’t sure which legal entity is right for your business, MKS&H is here to help.
Make Taxes for Foreign-Owned Businesses Easy with Help from MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to explore the many tax benefits of investment properties and assess your real estate portfolio. Contact us today for a consultation.
