Acully Incorporated

Legal Considerations

Entity Type

Sole Proprietorship: Simple to set up, but no liability protection.
Partnership (GP, LP, LLP): Shared ownership, liability depends on type.
LLC (Limited Liability Company): Liability protection, flexible management.
C Corporation: Strong liability protection, more complex.

Liability Protection

LLCs and corporations provide personal asset protection from business liabilities.
General partnerships do not.

Formation Requirements

Must register with the state (LLC/corporation).
Choose a unique name, register a registered agent, and file Articles of Organization or Incorporation.
Draft internal governance documents (Operating Agreement, Bylaws, etc.).
Define roles, equity ownership, and IP ownership

Licensing and Permits

Local, state, and federal licenses may be required depending on the business type and location.
Foreign-owned businesses must register to do business in the states where they operate.

EIN (Employer Identification Number)

Required for most entity types, especially those with employees or multiple members.

U.S. Banking

An EIN and verification of the beneficial ownership is required to open an U.S. bank account
A U.S. address is also usually required

Tax Considerations

Federal Tax Classification

Single-member LLCs (Disregarded Entity): Pass-through taxation. The foreign owner must file a U.S. individual income tax return.
NOTE: If the foreign-owner does not possess a SSN, they must obtain an ITIN to file an individual tax return
Partnerships and Multi-member LLCs: File Form 1065; income passes to owners. The foreign owner must file a U.S. individual income tax return.
C-Corporations: Potential double taxation (corporate and shareholder level).

State and Local Taxes

Income/franchise taxes, sales/use taxes, and gross receipts taxes vary by state.
LLCs often pay annual fees or franchise taxes even if income is zero.

Record-Keeping and Accounting

Corporations and some LLCs have stricter requirements for financial records.
Transactions between foreign related parties and the reporting corporation should be documented to ensure accurate disclosures.

Additional Reporting Requirements

Form 5472

Required if a 25% or greater foreign owner (or a foreign related party) engages in a reportable transaction with the business
Attached to Form 1120

Form 1120 (Pro Forma)

Foreign-owned U.S. disregarded entities must file a pro forma Form 1120 with Form 5472 attached

Form 8858

Required if the U.S. business owns a foreign disregarded entity (FDE) or foreign branch of the business in its entirety
Filed with Form 8865 (if FDE is a partnership) or Form 5471 (if FDE is a corporation)

Form 5471

Required if the U.S. business is a shareholder in a foreign corporation and falls under certain ownership thresholds/ categories

Form 8865

Required if the U.S. business is an owner of or involved with a foreign partnership

Tax Withholding

FDAP income (interest, dividends, royalties, rents) paid by the U.S. entity to a foreign owner may be subject to 30% withholding tax, unless reduced by a tax treaty.
Form W-8BEN or W-8BEN-E is required to certify foreign status and claim treaty benefits.

Transfer Pricing Rules

If a foreign-owned U.S. company transacts with its foreign parent or affiliate, it must use arm’s-length pricing and maintain documentation under IRC §482.
Improper pricing can result in penalties and adjustments by the IRS.

Inbound Investment Regulations

Certain foreign investments are subject to CFIUS (Committee on Foreign Investment in the U.S.) review, especially in industries like defense, critical technology, or infrastructure.

Foreign-owned U.S. based businesses have unique legal and tax reporting requirements. Proper reporting is critical for avoiding hefty noncompliance penalties. Allow us to advise you on your tax reporting obligations.

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Considerations when operating a U.S. business abroad