An LLC is a hugely popular business structure in the U.S., both for residents and foreigners from all over. LLCs are famous for their hybrid entity – combining characteristics of a corporation with that of a partnership or sole proprietorship. TRUiC is one company that is always in the news covering the latest on startups in America. According to their guides, here are just a few reasons why you should start an LLC in America right away:
LLC members receive the same personal liability protection as shareholders in a corporation, without having to incorporate. This means they aren’t personally liable for any LLC debts or obligations that stem from contractual arrangements between the LLC and others. This is an attractive feature for an LLC, because it saves business owners the time and money you’d need for going through the incorporation process to form a corporation.
But there is one exception to the limited liability protection – trust fund taxes, (which include federal income taxes that were withheld from employees’ gross pay, and the employee’s share of FICA taxes.) – regardless of the legal form of business, LLC or corporation, owners may still be held personally liable for delinquent trust fund taxes, that even filing for bankruptcy will not help with.
The pass-through tax treatment, a feature of the LLC coming from partnerships, provides LLCs with two big tax advantages, that they would not be able to avoid if they had a corporation, for instance.
The first advantage is no double taxation. C corps can have their income taxed twice – first at the corporate level, and then at the individual level when after-tax income is distributed to shareholders as a dividend. An LLC does not pay tax at the entity level, so the income is fortunately only taxed at the individual level.
The other advantage is deductible business losses.A single-member LLC is automatically taxed as a sole proprietorship, whilst a multi-member one is taxed as a partnership, unless an election is made to be taxed like a corporation. Sole proprietorships and partnerships receive pass-through tax treatment, which means owners pay income taxes on only their shares of business income, on their own individual income tax return – and get to deduct net business losses, from other sources of income.
LLCs have much less constraints than corporations, so they can be as simple or as complicated as the owners want them to be. Owners can choose whether they want to have annual meetings, whether they want to create long agreements, and various other things. There are no legal requirements for LLCs to do a lot of things, including having operating agreements (though this is advised so that people know the LLC is legitimate). In most states, there are very few mandatory requirements for LLCs.
LLCs in America are not only popular for residents that actually reside in America. In fact, huge amounts of foreigners that don’t even live there decide to create LLCs in America for various reasons. If an LLC is incorporated in the U.S. as a non-resident, the business is 100% owned by the founder alone. And as there is no business establishment in the U.S. (because the person is a foreigner) the company in the U.S. will be completely tax-free.
LLCs have a pass through taxation, which means no corporation tax is paid at the place of origin, and tax liability is transferred from the company to the directors. The tax liability of the administrator depends only on the person’s place of residence – so he would only be taxed in the country he is in for it.
A foreign resident is a disregarded tax-free entity, and does not have to file a U.S. tax return.
Interested in forming an LLC now? Read more on how to do it here.