If you have a foreign partner probably the best choice of entity is an LLC if you are a mall start-up (see our website's entity guide). You cannot make a s-corp election with a non-US partner/ owner, however you can be a standard C-Corporation. There are some benefits for C-Corporations and some benefits for being an LLC. Here is an excerpt from our firm's entity selection guide:
The Limited Liability Company (LLC) is a relatively new business entity that has gained tremendous popularity in recent years because it overcomes certain limitations and restrictions inherent in other entity forms. LLCs provide owners (called “members”) the legal protection of limited personal liability for the business debts and lawsuit judgments of the company to the same extent as a Corporation. LLCs can have any number of members, and the members do not have to be residents of the state in which the company is formed. Unlike an S-Corporation, other business entities such as a corporation or another LLC can be members of a limited liability company, which affords its principals the ability to establish holding companies and subsidiary entities, and which can protect the identities of the owners.
LLCs that have several owners are “Multi-Member” LLCs and are generally taxed by the IRS like partnerships, meaning that the LLC files an information tax return but does not actually pay taxes itself. Rather, the LLC passes its profits and losses through to its members, who report their portion of the LLC’s business income or loss on Schedule C of their individual income tax returns. An LLC that has one owner is called a “Single Member” limited liability company and is treated (by default) as a disregarded entity for Federal income tax purposes, just like a sole proprietorship. Thus, the profits and losses of the Single Member LLC aren’t taxed at the entity level and simply pass through to the single member, who then pays taxes on the income on his or her tax return. This means that both Single Member and Multi-Member LLCs offer the benefits of pass-through taxation of profits and losses and limited liability and personal protection for the owners.
Like LLCs, Corporations limit the personal liability of the owners (called the “shareholders”) for the corporate debts, legal claims and other obligations of the business. Anyone can form a Corporation and incorporated businesses qualify for many corporate tax breaks unavailable to Partnerships, LLCs and Sole Proprietorships. However, Corporations are generally the most expensive entity form under which to operate and are subject to more complex tax rules, so only successful businesses will ultimately enjoy the potential tax advantages of incorporating. There are also more on-going corporate governance formalities that are required to be taken by Corporations, and all of these increased expenses of operation must be considered when selecting the form of entity for your business.
Corporation under the tax code. A “C” Corporation is subject to Federal and state corporate income tax rules and regulations that differ from those for sole proprietorships, LLCs, partnerships and “S” Corporations. Generally, before any net profits may be distributed to the shareholders, a “C” Corporation must pay Federal and state income tax on the profits at the applicable corporate rate (15%-35%). Then, each shareholder must also pay taxes on any profits that are distributed to them from the Corporation as dividends, at the individual tax rate of the shareholder (unless the shareholder has other qualified investment losses). This is known as double taxation, where business profits are taxed at both corporate and the individual shareholder levels. For more information see our website.
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