When investing in the United States, the first step is to decide how to carry out the investment – directly as an individual or indirectly by one of the associations recognized by U.S. law. For the most part, Israelis seeking to make real estate investments in the United States prefer to make their investment indirectly by creating an L.L.C (an acronym for Limited Liability Company).
The main motive that drives many to prefer using an L.L.C is the combination it offers between extensive legal protection for the company’s owners and simplicity at the taxation level.
In the article here we will explain what is an L.L.C, the benefits of using one, and how to establish an L.L.C in five steps.
An L.L.C. – What is it and why should you use it?
An L.L.C is a commercial association established in order to make profits. Unlike other companies we might know when it comes to an L.L.C, the company does not have a share capital and the company’s owners do not own it through such shares. Thus, unlike other companies, L.L.C. owners are not called shareholders but partners.
However, like the case with other companies, the L.L.C is a distinguished legal entity, separate from its owners. This separate structure ensures limited risk to the company’s owners and their assets in the event of a claim or liability of any other kind. The partners’ liability is limited solely to the amount of their initial investment in the company.
The uniqueness of the L.L.C. is that this separation does not exist from the taxation aspect. Although the L.L.C. will file a partnership report regarding its annual income, the tax liability will not apply to it but to the partners. The main benefits are tax rates of individuals and procedures which are much simpler.
In fact, an L.L.C is a hybrid that combines the benefits of a limited liability company with the tax advantage enjoyed by partnerships.
Alongside extensive legal protection and tax transparency, the L.L.C simplifies bureaucratic matters. The options available when using an L.L.C regarding the composition of the partners and their quantity, various regulatory obligations, as well as low operating costs – make it an excellent option for foreign investors.
Investing using an L.L.C has many advantages alongside quite a few shortcomings, we strongly recommend receiving professional advice that will help you choose the right form of incorporation for you, given your specific goals and needs. Choosing the right form of investment is the first step towards a yielding investment.
Creating an LLC in five steps
On the face of it, the establishment of an L.L.C is relatively simple. However – as we will explain in the upcoming segments, professional knowledge and expertise are important.
Step 1: Choose a location to establish the L.L.C
When it comes to creating an L.L.C, each state in the United States has different rules and different taxation aspects that apply to it. The variance is reflected in the requirements of the law for registration purposes, the scope of the fee, and the applicability of various state taxes and levies.
As such, the location in which the company is established is crucial as the obligations and opportunities the company will have will be derived from the relevant regional laws. An informed choice of a location to establish a company will ensure a smaller burden meaningless bureaucratic complications and taxation.
This matter is critical to executing successful investments, and we strongly recommend receiving professional advice, advice that will help you locate the ideal location which best suits your specific needs.
Step 2: Name your company
When registering a company, you will be required to name it. Each country has different rules regarding the choice of names for companies, but in most cases, three basic rules apply:
- The name must include the extension: Limited liability company
- The name is available – there is no other company that has the same name.
- The name is not misleading to think that it is a government authority.
Step 3: Editing and Submitting Articles of Organization
The incorporation documents are official forms (which differ slightly in each of the states), that include basic details about the company: name, purpose, address, etc. The forms must be submitted to the offices of the authority responsible for the issue in the country where the company was established. When you submit the documents, you will be required to pay a fee for the establishment of the company.
Step 4: Edit the Operating Agreement
Not all countries require this step, but when the company has a few partners, it is recommended to reach a formal agreement.
Such an agreement will usually l include the following:
Where and when the company was established, what are the company’s objectives, who the partners are, and what distribution of ownership is between them.
How to make administrative decisions in the company.
Details of the company’s structure dividing ownership and addressing additional capital investment in the future (as required).
How to distribute profits and losses between the partners.
Changes in the composition of ownership
Addressing possible changes in the future and in what circumstances and manner will be carried out.
Step 5: Issuing an EIN
An EIN (short for employer identification number) is an identification number used by the U.S. tax authorities. It is used for various purposes such as opening an account, opening a file with the IRS, and other similar actions.
An L.L.C It is the ultimate form of incorporation for many investors: it ensures legal protection and tax transparency, and the process of establishing it is relatively simple. However, despite the relative simplicity, its establishment should not be taken lightly.
Questions such as adapting the form of incorporation to the needs of the investment, the ultimate location for the establishment and formulation of incorporation documents – require attention and professional knowledge. By strategically planning your steps and receiving professional advice you will avoid unnecessary expenses and procedures and will ensure your investment will yield the optimal results.
The MasAmerica team specializes in strategic tax planning and will be happy to assist you with any questions about creating an LLC or anything else.
|Type of legal entity||Separate||Separate|
|Taxation||Independent in taxation manners||Transparent|
|Flexibility||Regarding owners||Regarding owners|
|Bureaucracy and regulation||Wide scope||Limited|
|Setup and operating costs