Starting a Business US resident and non-resident LLC formation

[Keyser10]

Jurisdiction

Maryland

Hi,
Thanks in advance! I have a sticky situation, non-urgent but critical.
My business partner (Maryland resident) and I (non-us resident) would like to incorporate an LLC in the US to continue our on going business (registered and operating out of the UK). The idea is to fold up the uk company and transfer everything to the new US LLC. We offer services online and have zero physical presence anywhere.

Ive been told many times that its better to form in places like Wyoming rather than Maryland for tax reasons and because I'm non-resident, however, if my partner is a maryland resident doesnt that alter the equation significantly?

So I guess my question is should (can) we register in another state or does his maryland resident status effectively force us to incorporate in Maryland due to potentially having multiple state filings in the future?

Many thanks!

 

[army judge]

Ive been told many times that its better to form in places like Wyoming rather than Maryland for tax reasons and because I'm non-resident, however, if my partner is a maryland resident doesnt that alter the equation significantly?

You and your business partner should seek the advice of a licensed, trusted attorney.

You do yourselves a disservice and injustice by seeking the counsel of anonymous entities regarding your livelihoods!

 

[Tax Counsel]

Hi,
Thanks in advance! I have a sticky situation, non-urgent but critical.
My business partner (Maryland resident) and I (non-us resident) would like to incorporate an LLC in the US to continue our on going business (registered and operating out of the UK). The idea is to fold up the uk company and transfer everything to the new US LLC. We offer services online and have zero physical presence anywhere.

I would suggest that transferring all of your present UK business to the US LLC is probably not a wise move. The U.S. imposes worldwide taxation on its individual and corporate taxpayers, and transferring your non U.S. business activity to the LLC could result in more tax paid. You might wish to limit the US LLC to activity in the U.S. I'd strongly recommend speaking with both US and UK tax counsel who are familiar with their respective nation's tax treatment of citizens doing business abroad and with businesses having foreign owners.

LLCs are commonly used for closely held businesses in the U.S. By default a LLC is treated as a partnership for US federal tax purposes, but might be regarded as a corporation by the UK. This could create a positive tax situation for you for the income you have from US operations, but will create additional obligations on the LLC and your US partner because there are somewhat complex requirements for the LLC to withhold tax with the respect to the foreign partner's share of the LLC income. That's another reason you and your partner want to consult a US tax attorney familiar with taxation of US businesses that have foreign owners.

Ive been told many times that its better to form in places like Wyoming rather than Maryland for tax reasons and because I'm non-resident, however, if my partner is a maryland resident doesnt that alter the equation significantly?

For most closely held US businesses there is not a great advantage to forming the entity in Delaware, Wyoming, Nevada, or Colorado unless the business is already conducting business in that state. If you are conducting business in any state then those states offer some of the lowest costs for LLC formation and relative ease of formation, but there are generally no great tax advantages gained from it. Since you'll have a LLC member with a physical presence in Maryland and who presumably will be undertaking some significant actions for the business in that state (which may be management operations, finance, or whatever) Maryland likely will regard the LLC as operating in the state and thus require it to register in the state. If the LLC is not organized in Maryland the LLC would register as a foreign LLC. That results in basically the same costs and obligations in Maryland as you'd have if you just formed it in that state, as well as the additional costs of forming it in some other state, and for likely little benefit. But the details of your business plans matter, and thus you and your partner should discuss that part of things with a Maryland business attorney.

 

[Keyser10]

You and your business partner should seek the advice of a licensed, trusted attorney.

You do yourselves a disservice and injustice by seeking the counsel of anonymous entities regarding your livelihoods!

Thanks for advice! I do plan on doing just that and I find it very helpful to be able to understand the scenario better and thus be more precise thanks to you good folks volunteering!

 

[Keyser10]

I would suggest that transferring all of your present UK business to the US LLC is probably not a wise move. The U.S. imposes worldwide taxation on its individual and corporate taxpayers, and transferring your non U.S. business activity to the LLC could result in more tax paid. You might wish to limit the US LLC to activity in the U.S. I'd strongly recommend speaking with both US and UK tax counsel who are familiar with their respective nation's tax treatment of citizens doing business abroad and with businesses having foreign owners.

LLCs are commonly used for closely held businesses in the U.S. By default a LLC is treated as a partnership for US federal tax purposes, but might be regarded as a corporation by the UK. This could create a positive tax situation for you for the income you have from US operations, but will create additional obligations on the LLC and your US partner because there are somewhat complex requirements for the LLC to withhold tax with the respect to the foreign partner's share of the LLC income. That's another reason you and your partner want to consult a US tax attorney familiar with taxation of US businesses that have foreign owners.



For most closely held US businesses there is not a great advantage to forming the entity in Delaware, Wyoming, Nevada, or Colorado unless the business is already conducting business in that state. If you are conducting business in any state then those states offer some of the lowest costs for LLC formation and relative ease of formation, but there are generally no great tax advantages gained from it. Since you'll have a LLC member with a physical presence in Maryland and who presumably will be undertaking some significant actions for the business in that state (which may be management operations, finance, or whatever) Maryland likely will regard the LLC as operating in the state and thus require it to register in the state. If the LLC is not organized in Maryland the LLC would register as a foreign LLC. That results in basically the same costs and obligations in Maryland as you'd have if you just formed it in that state, as well as the additional costs of forming it in some other state, and for likely little benefit. But the details of your business plans matter, and thus you and your partner should discuss that part of things with a Maryland business attorney.

Many thanks for the clarity and advice! Especially the factor of US worldwide taxation and its implications. This greatly helps us understand the variables better!