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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 117370
Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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I am formalizing a small marketing service business with a

Customer Question

I am formalizing a small marketing service business with a few partners form the UK. I have a fair amount of experience with S-Corps and LLCs, and know we can't do an S-Corp because they are foreign nationals. SO my options are C-Corp and LLC. Looking
for a few quick answers regarding the best option for me (both liability and taxation). I will likely form a new LLC to be my equity interest in either, and the partners are in TN (but UK national with appropriate visas to own and operate businesses in the
US as she already owns several LLCs.) and other partners in the UK.
Submitted: 1 year ago.
Category: Business Law
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
You would likely do best for tax purposes and the fact you will have foreign nationals to do the corporation, since the corporation can pay taxes and dividends to foreign nationals if they are non-residents without all of the difficulty of them filing non-resident tax forms. The LLC is easy to operate and if the nationals are in the US and already file tax returns, then that is the way to go for ease of operation.
Both the LLC and Corporation protect you from liability. Taxation, the LLC would pay less tax, but again if the foreign nationals are not US residents it would be best to do the Corporation for ease of paying the foreign nationals. But if they are in the US, since they already file tax forms in the US, the LLC would make more sense.
Customer: replied 1 year ago.
My current LLC has been in operation in CO since 2008 (previously 1996 in Louisiana), and we made the S-Corp election for tax reasons this February. I would have liked to do that here, but know that I cannot because of the foreign partners.
Customer: replied 1 year ago.
myself, and the primary other partner (UK citizen) are in the US (she and her husband live in TN). The other partners (minority partners) are in the UK, and Spain. In an LLC, do we have to withhold 30% to the IRS before any disbursements to them?
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your reply.
If they are non-residents you would have to withhold the 30% before disbursements and they have to file a non-resident return. The C-corp there are ways around it (such as paying them as employees instead of owners and getting the money to them that way and it would then be up to them to pay taxes in their country). As owners of an LLC you could not pay them as employees to get them the money so it becomes more complex.
Customer: replied 1 year ago.
OK, here's another wrinkle. The UK partners own a company which will be providing a large portion of professional technical services to this new entity. I own a US S-Corp (LLC) that will be providing a large portion of professional marketing and management services.So hypothetically, in a 100K revenue year, $20K goes to infrastructure, $35K in Marketing, $35K in technical services, leaving $10K in profits. Is the C-Corp taxed on the $100K or the $10K?I know the LLC passes the $10K through K-1s to it's partners (as the $90K in expenses comes off the top), and then the partners are taxed (including SE tax) on their 1040s. But I don't know how it would work for the C-Corp?
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your reply.
So you are better off then using this as a corporation, because of these tax issues and also this way you can pay everyone as employees or contractors and not have to worry about the LLC issues of paying members, who would have to take it as dividends.
Customer: replied 1 year ago.
in the LLC, if vendors also have a partnership interest, then there are concerns?
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your reply.
Yes, if they are members, you have some possible issues whereas if they are shareholders and you have contracts with them it is less problematic.