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Limited Liability Company (LLC) or Corporation

In many cases, the Corporation is the most convenient form of legal entity in the United States for non-US residents. This form provides owners with more flexibility in a company’s management, tax planning and ownership transfer.

In the United States, registration of legal entities is conducted at the State level. In general, there are three most common forms of legal entity registration: Partnership, Limited Liability Company (“LLC”) and Corporation (“Corp”).

 Partnerships.

Owners of a partnership (“Partners”) are usually fully liable with their assets at risk for the liabilities of their partnership. In many cases this reason alone makes this form of registration least favorable among all possible options.

Corporations.

There are two types of corporations in the United States: (i) C Corporation (“C-Corp”) and (ii) S Corporation. (“S-Corp”). The major difference between them lies in tax treatment.

For the tax purposes, S-Corp is an "ignored" entity, which means that the S-Corp’s income is taxed at the owner's level. A corporation may request for the S-Corp status by filing Form 2553 with the Internal Revenue Service (“IRS”). According to the current regulations, the S-Corp status is not permitted for corporations owned by US non-residents.

The C-Corp income is subject to federal income taxes, and possibly income tax to the particular State. In case of repatriation of net profits in the form of dividends to a non-resident, additional tax on dividends (withholding tax) may be withheld. However, if a Corporation pays out no dividends, no withholding tax is levied. If a US non-resident collects dividends from a US Corp, the US non-resident owner must fill out Form 1120-F.

Limited Liability Company (LLC)

The profit of an LLC is treated as income of the LLC owners. In the case of US non-resident owners, the LLC is taxed as a corporation, plus all net profit is considered "deemed dividend" and 30% withholding tax is levied.

After its formation, an LLC may apply for C-Corp status from the IRS. This request must be made by filing Form 8832 within 75 days after the formation of the LLC. If approved, the LLC is then treated as a C-Corp for tax purposes.

 

LLC

LLC - C Corp

Corporation

Liability for the obligations of legal entity

Owners are usually not liable for the obligations of LLC.

Owners are usually not liable for the obligations of LLC.

Owners are usually not liable for the obligations of Corp.

Formation

Formed by state. Need an annual certification.

Formed by State. Need an annual certification. C-Corp status is requested from the IRS separately.

Formed by State. Need an annual certification.

Management

Management system is set by the owners.

Management system is set by the owners. 

Owners choose the executives.

Time period of existence

May be limited by State law.

Unlimited

Unlimited

Taxation

Is not taxed at the LLC level. Taxed at the owner’s level (except US non-resident owners).

Pays taxes at the LLC level. Owners pay a tax on dividends. 

Pays taxes at the C-Corp level. Owners pay a tax on dividends.

Transfer of ownership

 May be limited by State law.

 May be limited by State law.

 Practically unlimited

 


If you need assistance registering you business in the United States, please feel free to contact us by email or by phone +12024137187. 

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