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socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 37952
Experience:  Retired (mostly)
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I am looking “logical and reasonable” structure that takes

Customer Question

I am looking for a “logical and reasonable” structure that takes into account my current situation. Situation is as follows;
- We have a consulting business that has an onshore and offshore component (USA and India)
- We are currently set up as an Indian entity that is the production company and a separate entity in the USA that sells the service (USA entity uses a DBA).
- Indian entity charges USA entity for services .. USA entity bills the customers in USA.
- (1) Indian partner and (1) USA partner each own half of each company.
- We have become profitable and now wish to increase number of partners in both USA/India and raise outside funding.
- What is the proper structure considering
o Funding will come from USA – investor would like security of USA entity vs Indian
o Operating partners are both in the USA and India
- Does this structure make sense?
o USA Holding Company (HC) – vehicle for fund raise
o USA based operating company -
o Indian based subsidiary-
o Is so, how should shares be issued .. all partners in holding company ect?
Submitted: 12 months ago.
Category: Business Law
Expert:  socrateaser replied 12 months ago.

Hello...you asked:

What is the proper structure considering o Funding will come from USA – investor would like security of USA entity vs Indian o Operating partners are both in the USA and India - Does this structure make sense? o USA Holding Company (HC) – vehicle for fund raise o USA based operating company - o Indian based subsidiary- o Is so, how should shares be issued .. all partners in holding company ect?

A: You have only two reasonable choices: C Corporation, which is a general corporation that is typically used in business enterprises which intend to issue shares in a public offering. A C corporation can have more than 100 shareholders, some or all of whom are nonresident aliens (non U.S. citizens or resident aliens). However, a C Corporation is taxes as a persons, consequently, C corporation dividends to shareholders are taxed at the corporate and individual level (double-taxed). A single taxed (pass-through) S corporation cannot have a foreign shareholder, therefore, this is not an option for your circumstances.

The alternative entity is an Limited Liability Company (LLC). LLCs are typically private organizations, with no intent for any public or large numerical shareholder activity. The LLC is easier to administrate than is a C Corporation, because no board meetings, corporate resolutions, or annual shareholder meetings/elections are required. However, an LLC that intends to sell investment interests requires an "operating agreement" to provide the rules under which the LLC will function. Otherwise, shareholders may have unintended/unexpected rights and duties under the default rules applicable to the jurisdiction in which the LLC is formed. Provided, however, that a competent operating agreement is established, an LLC is not double taxed, and therefore may be the preferred legal entity for your circumstances.

As far as how shares would be issued, an LLC does not require physical share issuance. The operating agreement can describe the method by which parties become "members" (i.e., the LLC equivalent of corporate "shareholders"), and by what means their interests are memorialized.

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