Ask HN: LLC with International Founder

[stillmotion]

I'm not entirely sure if this question has been answered before, but I've searched around for a while and cannot find anything on the subject.

I'm looking to form an LLC in the next couple of week for an up-and-coming product a friend of mind and I are working on. Problem is, I live in the US and he lives in the UK. Does the international aspect of my co-founder increase the complexity of government taxing? Has anyone had any experience with this scenario?

Any help would be greatly appreciated.

[jhancock]

You should eventually speak to an expert. When? It depends on how quickly you expect to yield net revenues and need to distribute profits.

If you expect to run in the red for a while and once you show some traction may bring in investors, then I would follow my "rule of lazy paperwork":

1 - An outside investor will want you to restructure into an investment compatible vehicle, not an LLC most likely. So treat you LLC as an operating vehicle while you bootstrap. The less complex things are in the beginning, the less complex it will be when you need to restructure.

2 - For any startup partner you can write a simple contract that says the intellectual property ownership is shared by your persons and will be injected into some new entity in the future. In the meantime, you create another one-page contract that licenses this jointly owned IP to your operating LLC.

3 - You can't easily have both UK and U.S. rules. I suggest your partner accept that he is enjoining a U.S. (really, your state) ruled set of contracts and live with it.

4 - In the future, you can assign your IP into an offhore entity (e.g. Caymans) and then redeploy those licensing contracts your LLC already has. At this point you would also make the U.S. LLC a wholly owned entity of the offshore entity and have all you and your partner's shareholdings in the offshore entity.

The above gives you an operating LLC so you get some protection and can have bank accounts, etc... Until you need to distribute any earnings, you can keep it simple and with little paperwork.

As always, IANAL, this is simply how I might approach the problem.

[yokumtaku]

You will need to engage someone to help file the LLCs taxes, so you should engage this person now and start asking your question before you incorporate.

Among other things, consider the following:

1. If this is the type of project that is intended to be VC-funded in the future, you should start with a corporation, not an LLC. (Keep in mind that an S corp can't have non-U.S. residents.)

2. If the LLC is a flow through entity, the UK person may have income "effectively connected to a U.S. trade or business," which may subject them to U.S. income tax at the same graduated rates that U.S. persons pay.

[ahoyhere]

It definitely increases the complexity of taxing. Sorry. I know how you feel - I'm an American partnered with (& married to) an Austrian (and we both live in Austria!).

However, I'm fairly sure that the UK and US - like every other major country and the US - have an anti-double taxation treaty. Which probably means that you personally will pay taxes only in the country which has the highest rate (clearly your home country).

IF - and only if - you get good tax advice up front can you reduce your American taxes by carefully structuring the way you take money out of the company.

It's hard to find accountants who are experienced in this. My personal suggestion would be to call Deloit or another big international consultancy.

EDIT: Sorry, I got who's UK/who's US backwards. Advice still stands tho. You can definitely form an LLC with a foreigner, even using an online service, it's just that taxes are a bitch. No way around that.

[timcederman → ahoyhere]

Wait, what? As a citizen I pay double taxes. I get a credit up to ~ $83k, and after that I get double taxed.