Home > Research Legal Advice > Securities Offerings > Real Estate Investment firm with foreign investors
Asked over 1 year ago - Sacramento, CA
Flag
I would like my relatives overseas to fund/invest in my real estate investment company. Should I form a multi member LLC? Can I form a LLC in Delaware or Arizona to avoid the $800 fee in CA (I am a California resident). The investors would be relatives from India and Oman.
Are there tax implications for them? How would their earnings be taxed in the US/
Disclaimer: The materials provided below are informational and should not be relied upon as legal advice.
Your question is much more complicated than what could be answered here. Investment matters are highly regulated. Although federal securities laws and state blue sky laws mainly aim to protect U.S. residents, you will still need to keep them in mind. If the business entity will be operating in California, the foreign entity will need to qualify to do business in California, file its annual statement of information with the California Secretary of State, and pay its franchise taxes, so incorporating in another state will not necessarily save you any money. You should consult a knowledgeable business attorney to protect your legal rights.
You question is far more complex than you may imagine. First of all, are you investing in California real estate? If so, you will be taxed by California subject to the yearly $800.00 franchise tax fee. Second, if are not purchasing California real estate, your personal interest in the LLC would still be taxed in California, and the enity will be still subject to the $800.00 fee if you are managing the entity in California. Third, the sale of investment interest in your LLC is probably the sale of securities.
This is a complex investment that will probably require a private placement memoradum and tax opinion which is too sophisticated for a definitive answer on this site.
Good luck!
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Call: 855 IRSTAXBIZ
If you are planning to formulate llcs for the purpose of structuring real estate investments, the $800 minimum fee to the State of California should be the least of your concerns. In all likelihood, the $800 fee will be the least expensive cost you are going to encounter.
The nature of what you are trying to do is complex. There are many areas that you will need to get right including tax concerns, DRE concerns, corporation concerns, foreign investor issues, international monetary transfer concerns.
You should consider getting a good business attorney to advise on these delicate issues. Competent counsel is worth its weight in gold. Sound advice from competent counsel costs some money, but it is definitely a lot less expensive than having to bring counsel in after you have a serious problem to clean up the mess.
This is going to require some sifting through the elements of your question. First, an LLC or a C corporation are the only options for foreign nationals in terms of equity (other than partnerships, etc.). You could form the LLC in Delaware, which I think is preferable. If you do business in California, however, you will pay the $800 as a foreign registered company. As to taxation, I do not think there is a tax treaty between the U.S. and those countries. You will need tax counsel or a knowledgeable accountant to advise you on those matters.
I have several Indian clients with investments in U.S. companies, so it is a common endeavor.
No matter what you do, you're likely going to still have to pay CA franchise tax and CA registration fees. An LLC is a very good vehicle for this sort of investment, but there are numerous other options. For example, you could form a Real Estate Investment Trust (REIT), which offers some operational advantages notwithstanding the fact you have to distribute 10% of the trust's income to investors.
If taxes for your non-US investors are an issue, what you can do is form a "feeder fund" in a tax neutral jurisdiction (Mauritius is usually the place when you're dealing with Indian investors) that would invest in your US fund. This of course adds another layer of costs, but depending on the amount of money at stake, considering such an option may be worthwhile.
My firm and others usually work with counsel in other jurisdictions to address these sorts of issues.
Don't speak legalese? We define thousands of terms in plain English.
Browse our legal dictionary