Hello all, this is my first post on the forum, but I have been browsing it for some time now. I have been running into some difficulties and was hoping for some advice and feedback. I recently have decided to form a media and marketing company that will design, publish, and operate varies websites. The difficulty I encounter occurs since myself and business partner reside in two different countries; he lives in Canada, while I live in the US. This is not an issue as far as business operations go, since we are very capable of keeping in contact with today's technology, but it causes significant problems when deciding upon the structure of the company. As of now, we simply have an undefined partnership, but we hoped to file as either an LLP, or LLC. If I were to file as an LLP or LLC in the states, how does that impact my partner's taxes in Canada? and my own taxes in the US? The company is completely based online, so we have no central location on where to base the business. We just want to make sure that we are able to divide profits 50/50 and not suffer from tax disadvantages because of our different locations. I appreciate the help, and if there is any further information I can offer, just feel free to ask.

Thank you.

It's been said before: the best advice to get would be from your attorney or CPA. There are, as you might assume, lots of resources available from the US government and people who "like to help."

Here is a link that describes some different business formats. I didn't see anything specifically describing your situation at first glance, but there could be some little treasures buried there.

I hope this points you in the right direction. There also may be some forum-goers who are in a similar situation that can provide some opinions.

http://www.business.gov/topics/business_la...ures/index.html

Good luck with your venture!

Chris

Definitely contact your accountant. You would get much better advice from a CPA than you could ever get here.

There are many good resources out there to help you in your quest to find the optimal business structure...

I have found that the best states to incorporate in are Delaware and Florida. (Some people say Wyoming is really good too but I am not so sure if that's true). You should definately talk to a real attorney before you make the decision of which type of formation you want to pursue. If you don't do that, you risk reading some flimsy website facts that are more marketing-based and less informative, thus leaving out the few key pieces of info that you really need right away.

As far as a recommendation... I would say forming an LLC is never a bad idea. Though I don't know exactly what your business structure (management) is like, you should consider looking into a "series LLC" -- a new form of LLC that is good for multiple formations under the same parents company. I say this because it is very new and not many people know about it yet. The only company I heard of so far that deals with a series LLC is http://www.incnow.com in Delaware . If you want to form a regular LLC, though, there are tons of qualified agents out there. Just check out the Secretary of State's page for the state you wish to incorporate in. Some good ones are CSC, CT, Bizfilings, etc. (Too many to name, especially in states like Delaware or Florida).

Here is my best suggestion, though: DO NOT form a partnership. Never, under any circumstance, form a partnership. With all these other types of formations out there, don't form a partnership.

Hope all that helped.

To determine what the best business structure would be, lets follow a decision tree.

Do you intend to be profitable?
Yes: then do business as all of the most successful businesses. Incorporate as a Real Corporation, THE most successful and Profitable businesses in EVERY industry are Corporations. Why?
No: rethink your plan

Do you want to sleep at night knowing you are less likely to be involved personally in a lawsuit?
Yes: then do business as a real corporation. We know how they are treated under the law, they've been around longer than the US Constitution.
No: then be the legal guinea pig for any of the johnny-come-latelys like the LLLP (limited liability limited partnership) or just jump into any of the failed entities like Limited Partnerships or LLCs; both of which have already been tested and failed in court.

Do you want to be respected by the businesses you do business with?
Yes: everyone understands what a corporation is.
No: choose anything else.

Do you want to reduce your potential for an IRS Audit?
Yes: REal Corporations, those that file an 1120 form, have the lowest audit ratio of all tax returns filed.
No: then file a schedule C on your personal tax return, you will increase your audit potential OVER 10 times.

Just a thought. I'm sure someone here will take offense by these statements.

Your right,

I am offended at your responses to this thread, and yet I am a corporation. I hope not to hijack this thread, but I have to say, just because you are a corporation does not guarantee you any profit, better sleep at night, or lack of attorney fees or CPA fees.

If you are in fact a CPA or an Attorney, take a look at the original posters question and give him and us some legitimate answers to his/her question. From the sounds of your post, I gather that you are trying to impress us that you can handle incorporating some business.

If I were looking to incorporate or change my corporations business entity, you would be the last person I would call from the sounds of your post.

Sorry fellow MC merchants, I just had to give my three cents!

I'm not offended, but your post is a bunch of BS. Incorporation isn't the only way to be respected as a business owner.

What exactly are you trying to sell, anyway, Mr. Spam? On second thought, don't answer that.

I am not offended by the poster, but the posting is nonsense. I'm a corporation, too, and we have no more or less respect for a business based on their legal structure.

Foreigners can be business owners in the U.S. There are tax withholding implications, however. (Hence, definitely talk to a CPA.) I believe the tax rates are more favorable here than in Canada.

This is a situation where an hour of a good lawyer's time for advice giving will be well worth it. Most laywers seem to charge $300 or so an hower these days. Not a bad investment to get off to a strong start.

Actually, Over the last few years Canadian Tax rates for corporations have become far better than in the US. A US Corporation pays a federal tax of 15% on the first $50,000 of net profit, and in Canada it is 15% on the First $250,000 in net profit, even with the exchange rate that is still a deal. There are specific rules as to ownership for that tax rate.

So lets add practical application to this.

If they incorporate the business In Canada, and the US partner creates a separate corporation in the US, And the US corporation invoices the Canadian Corp for service, or licensing, or inventory (depending on the type of commerce they do), then up to $300,000 is tax at only 15%. Or if they made a taxable amount of $100k, and werew even partners each would end up at $42,500, net spendable (not including State and or Province taxes).

How many of you business owners can claim a total tax rate of 15% on $300k or even $100k? Before responding consider that in all your pass through entities you also have to pay Self employment taxes of 15.3%. So my first criteria: "IF you are going to be profitable". . . not: "the corproation will automatically create untold wealth. . . "

As far as respect as a business goes, how many of you have applied for a loan through your LLC or Sub-S and had the bank NOT Require personal tax returns, financial statements, personal guarantee, AND still consider you high risk raising your interest rate a few basis points. Again, don't jump over the edge in your hyper excited state and say that you had a friend that had a corporation and still had to do that. That is absolutely true, but as a real corporation that can change, as a pseudo sole proprietor, it never will.

That is also true in the reverse, as a Passthrough income person, you will always be required to include your entire business profile (at least 2 years of tax returns, financial statements, etc) for a personal loan. On the other hand, if you were a w-2 employee of a corporation, what do you need to qualify for a loan? Your w-2 and two to three months of pay stubs. Which of these will get a better interest rate, all other things being equal?

Back to the original post:

"As of now, we simply have an undefined partnership"

Can we all agree that is bad?

"If I were to file as an LLP or LLC in the states, how does that impact my partner's taxes in Canada?"

For you, you will file taxes as if you were a sole proprietor. For your partner, His would be subject to 30% US withholding and due to tax treaties, he would get full credit of that 30% against his Canadian Taxes.

"The company is completely based online, so we have no central location on where to base the business. We just want to make sure that we are able to divide profits 50/50 and not suffer from tax disadvantages because of our different locations."[i]

State and provicial taxes can have a huge impact on the bottom line, Since you are not physically tied to any state, if you operate as a real corporation, you could eliminate state taxes through good choices. As a pass through, you have no choice.

Still offended? I just didn't want to waste the time bandwidth or server resources if no one was interested, by the number of posts it appears you are.

Oh yeah the liability statement. First Corporations have been around longer than the Constitution. We know how they are treated in the courts. If we look at the genesis of the LLC, we find it was developed to replace the LP which failed in court to limit liability. "But wait, the LP was DESIGNED to limit liability, the Statutes, the Marketing hype, the brochures all said the LP was a liability protection vehicle!!? What happened? It got tested. . . by the courts, it failed. Precedence setting case, Kroc v. Tupper. Oops, that didn't work, let's try something else. How about an LLC we'll CLAIM the liability protection of a real corporation, but retain the pass through aspects of the LP. Hurray, we've done it. "new and improved" is the way to go." you might want to look at Water Waste and Land v. Lanham. "Fear not fellow citizens the great and powerful OZ has just created the new LLP, which really will protect you form the wicked witch of the court. Well MAybe the LLLP (Limited Liability Limited Partnership) is the best answer."

If any of these worked there would not be generation 2, 3, 4,. . .72,. . . Lets look back. the LLC marketing materials claim the liability protection of the real corporation. Well isn't that flattering (Imitation is the highest form of flattery).

I'm not selling, just trying to clear out the legacy misinformation that is constantly regurgitated on the net.

]
You are absolutely right, Success only comes from intelligent thought, preparation, and execution, needing commitment, vision, and common sense. There is no magic pill, no night time infomercial, no best selling book, nor any document that you can file with any gov't agency that will make you successful.

Paraphrased and re-edited from Zig Ziglar:
"A Real corporation won't DO anything, but it will only allow those that are successful to be more successful than those that are not a real corporation.