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Creating a foreign owned LLC Starting a Business

Discussion in 'Starting a Business, Incorporation' started by Bobby Luthra, Feb 17, 2020.

  1. Bobby Luthra

    Bobby Luthra Law Topic Starter New Member

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    Jurisdiction:
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    Hi I am in India. My wife is a US citizen. I am intending to create a Michigan LLC with my wife as the responsible party. And I will be a member. This is so I can get an EIN quick because my wife has a SS#.

    However my wife wants to give up her membership in the LLC as soon as it is created. She does not want tax liability from this llc. We will file forms 8822 with the IRS to inform them of change of responsible party. And form 8832 to convert it to a single member llc. This paperwork must be filed within 60 days of the change.

    Question 1. Can we set up my wife as having 0 percentage in the llc or 0 economic interest and still make her responsible party?

    Question 2. When does the change in responsible party go into affect - when the forms are filed or when the irs approves the change? That means can she be liable to pay taxes on earnings of the llc even after we file the forms with the irs?

    Question 3.
    If 0 percentage is not allowed or not advisable for my wife, can she have 1% and I have 99% economic interest? Until she can give up her membership.
     
    Last edited: Feb 17, 2020
  2. adjusterjack

    adjusterjack Super Moderator

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    Is your wife a permanent resident of Michigan?
     
  3. Bobby Luthra

    Bobby Luthra Law Topic Starter New Member

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    no she isnt. We used to live in Florida. Currently we are in India.
     
  4. adjusterjack

    adjusterjack Super Moderator

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    I'm going to bow out of this thread because I have no idea if you can form an LLC in any state in the US without being a resident of that state and conducting business in that state.

    Since you are contemplating Michigan I suggest you contact the Michigan Department of Licensing and Regulatory Affairs for the answers to your questions:

    LARA - Limited Liability Companies

    Or, consult an attorney in Michigan.
     
  5. Zigner

    Zigner Well-Known Member

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    Our LLC was formed in a state in which we maintain no physical presence or any type of residency.
     
  6. army judge

    army judge Super Moderator

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    LLC Ownership in the USA by foreign nationals

    Resident and non-resident aliens, all foreign nationals and entities, may own an LLC within the United States.

    An owner of the business or a registered agent must file Articles of Organization with the Secretary of State for the state where the LLC was created.

    OP, before you do anything towards your goal, I suggest you speak with an attorney in India and one or two in Michigan.

    You'll also wish to seek counsel from YOUR CPA.

    Whatever you do, don't take any affirmative steps towards creating an LLC until you have retained counsel.

    Also, obtaining an EIN is for a very specific purpose related to taxes and the IRS.

    Do You Need an EIN? | Internal Revenue Service

    An employer identification number (EIN) is a nine-digit number assigned by the IRS. It's used to identify the tax accounts of employers and certain others who have no employees. The IRS uses the number to identify taxpayers who are required to file various business tax returns.

    Research time, OP:

    LARA - Foreign Limited Liability Company

    How to Qualify as a Foreign Business in Michigan

    Michigan Application for Registration - Foreign Michigan LLC

    LLC Michigan - How to Form an LLC in Michigan

    Do You Have to Be an American Citizen to Own an LLC?

    How to open a US LLC when you don’t live in the US • Online Taxman
     
  7. Tax Counsel

    Tax Counsel Well-Known Member

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    What is the need to have your wife be a member of the LLC? Why the sudden need for an EIN? You may form a LLC in Michigan without an EIN. You only need the EIN for the purpose of filing U.S. federal tax returns for the business. If you need a bank account for the LLC it may want an EIN for the purpose of reporting any interest earned on the account, if the account pays interest.

    In any event the IRS will issue an EIN for you pretty quickly without the need for your wife to be included as a member of the LLC. But you do need to have a responsible person listed on the application, and if that person does not have a SSN or ITIN that might slow things down. Ultimately you will need an ITIN to file returns for the income you get from the business if it does any activity in the U.S. So you may as well start working on that if this is going to be a U.S. business.

    The problem that I see with your plan is that your wife is never truly a partner in the LLC and thus including her just to game the EIN processing is a potential problem as you must attest to the facts in the EIN application under penalty of perjury. Perjury is a crime in the U.S. And saying she's a partner when she really isn't would be potential perjury. She doesn't need to be member of the LLC to be the responsible person for the LLC for the purposes of completing the EIN application. She just has to have the authority to control "directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets." See the Form SS-4 instructions. But again, if she really isn't going to have that authority then it is perjury to state in the application that she is the responsible person.

    If you are the sole owner of a LLC formed in the U.S. that LLC is disregarded for federal income tax purposes unless you elect for the LLC to be taxed as a corporation. If the LLC is disregarded then you would need to file a federal income tax return (Form 1040-NR) if you file separately from your wife, or file a joint return with her using the regular Form 1040. But to file the joint return you and your wife would have to elect for you to be treated as a resident alien of the U.S. for tax purposes. That would subject your worldwide income to U.S. tax.

    You might want the LLC treated as a corporation if you are going to be the sole member of it. That might help you with Indian taxes — something to discuss with an Indian tax professional. If there is no great savings for Indian tax doing that then you are likely better off having it treated as disregarded.


    Form 8822 is simply an address change form and has nothing to do with the responsible party.

    No. If the LLC was truly a two person partnership and then one person is removed as a partner you don't file a Form 8832 to convert it to a single member LLC because that occurs automatically when a partnership is left with just one partner.

    Yes, she may be a responsible person without being a member of the LLC, as I mentioned above. But she has to be real responsible person. Your plan to have her drop out as soon as the EIN is issued means she'll never really have that authority.

    It happens the moment she ceases to be a responsible person. Again, though, she does not have to be an owner to be responsible person, so she wouldn't have to share in any of the income. You can start out with it just being a LLC with you as the sole owner.
     

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