Establishing an investment company in the U.S.

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Many Israelis choose to make investments in the United States, whether it is investments in the field of finance, real estate, retail, etc. Some investors do not know that it is possible to save and facilitate the operation of the business, by opening an investment company. Which companies can be established and how to do so? 

 

Establishing an investment company in the U.S.: Background

The United States offers its investors a variety of ways to make investments. These companies invest their money collectively, insofar as a number of partners, who owe in its losses and win its profits, in accordance with the company’s holding relationship.

Despite the wide variety, in general, it is customary to divide the types of companies investors might open into two types – LLC (Company Ltd.) and Corporation.  In the following article, we will explain the advantages of each of these association types, who should they report to, and what their advantages and disadvantages are.

 

Corporation

A corporation is a reporting company, which informs authorities of its situation using Form 1120. The company’s profits are subject to 21% tax, which was higher and has recently dropped thanks to the Trump administration.

It should be noted that these corporations can also be defined as transparent corporations (S-Corporations), which will allow the owners of the corporation to pay personal tax as if they were private investors. In order to define a corporation as a transparent company, the entire corporation must meet all of the following conditions:

 

Shareholder Identity

Only estates, trusts, and individual holders.

 

Number of shareholders and type

less than 100, which holds only one type of stock.

 

Nature of corporate activity

Only corporations that are not financial institutions, including banks and insurance companies, and are not sales companies, will be able to register as an S-Corporation.

In order to change the company’s status to a Type S corporation, the Company must submit a registration request to the U.S. Tax Authority (IRS) and report its revenues to the authorities using Form 1120S.

 

LLC (Company Ltd.)

The LLC, or by its full name, Limited Liability Company, is the American equivalent of the Israeli Company Ltd. This is a separate legal entity, which leads to a separation between the company’s assets and the owners’ assets, which in its definition is reminiscent of what is defined in Israeli company law.

For the most part, real estate investors in the United States make their investments through these companies.

The principle of the separate legal entity allows the owner to defend himself in situations in which various claims are filed against the company, such as damages claims and debt repayments since the creditors are entitled to be repaid from the company only.

It should be noted that U.S. law determines the number of actions, carried out by the owner of the company, which can lead to the cancellation of the separation between the two and, ultimately, make the owner of the company liable.

It should be noted that owning an LLC requires the payment of an annual registration fee, which allows the holding of the company’s rights. In addition, all Israeli partners in these companies must submit a Form 150 to the Israeli tax authorities. 

 

Transparent society

Like a corporation, an LLC can be defined by the owner as a transparent company. This definition will also lead to the payment of taxation parallel to individual taxation and is made possible by applying to the tax authorities.

It should be noted that due to the fact that each state in the United States has independent tax laws, there are countries where it is better to open such partnerships, such as Ohio, where the tax rate paid is minimal.

 

LLC advantages

Logistics

As mentioned above, many who make real estate investments in the United States choose this company. This is because the company provides flexibility to its owners since they do not have to go to the United States at all to perform operations.

If a person makes investments privately, he must meet various bureaucratic conditions, including signing documents and dealing with various entities.

LLC can prevent this situation, since it functions alone, and allows various actions, including opening an American bank account, even remotely.

 

Ownership structure and leverage

In addition to the asset separation, which the LLC provides, the owner is given the option to recruit an unlimited number of partners, allowing for a wide margin of maneuver. Also, using an LLC allows for a higher rate of leverage and building asset portfolios.

 

Disadvantage of LLC

Price

Holding an LLC is not cheap. Tax costs and day-to-day operations can sometimes lead to a lack of investment viability. For those whose investments are not yielding as expected, opening this company may not be worthwhile.

However, it should be mentioned that each country across the United States has a different tax rate and, therefore, the tax rates to be paid should be examined.

 

Stages of association

  1. Submitting documents to the authorities, called Article of Organization. The details you will need to fill out in these documents are the intended company name, company address, shareholders and distribution, and more.
  2. Sign and submit an activity agreement, called the Operating Agreement.
  3. Producing an EIN number for the company, which is intended to pay the tax debts.
  4. Opening a U.S. bank account for financial management.

 

Establishing an Investment Company in the United States: Summary

While making direct investments throughout the United States involves many errands and trips, opening an investment company can make it significantly easier for the investor.

Among the many advantages provided by the various investment companies are the separation of assets, which protects the company owner broadly and significantly, higher financing options, and the possibility of unlimited distribution in some types of companies.

While some investors choose a corporation-type company, LLC companies are the most profitable among Israeli investors, especially in the field of real estate, for a variety of reasons.

  • First, LLC companies are not limited in the number of partners in it, allowing the payment burden to be distributed, as necessary.
  • Second, LLC enables its owners to carry out a wide range of business activities, including dealing with the banking entities, without the need to physically travel to the United States.

 

For more information on the establishment of L.L.C  read the article: Establishment of  LLC. 

More on the establishment of  C-Corporation in the United States can be found here: The establishment of  C-Corporation.

For more information and consultation, contact your team of accountants and lawyers MasAmerica.

Contact Us

This should not be seen as legal advice. It is recommended to consult with Masamerica’s team before any action. The service is provided by a professional team, who speak English and Hebrew fluently, and includes lawyers and accountants with American licensees.

The aforesaid should not be regarded as legal advice. It is advisable to consult with the MasAmarika team before any action. The service is provided by a professional team, fluent in English and Hebrew, and includes attorneys and accountants with American licenses.

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