Questions: Manager-Managed LLC With Foreign Members/Shareholders

[Mehran K.]

Hi Everyone! It's been a while :) I appreciate any help/responses in advance. I know this is definitely a question to be checked with lawyers/accountants, but it helps to know more before reaching out to them.

A business partner and I are entertaining the thought of bringing in some foreign money to tackle deals here in the US. The only structures I've used in all my LLC's are member-managed because it has always been a 50/50 partnership, so this structure is new to me.

Some details/notes/questions:

1. Current business partner & I already have an LLC together, so likely that LLC will be the managing member.

2. Foreign Investors are Family members of my business partner and we did not solicit them for money, they came to us. With them being family and reaching out to us, would we still have to deal with all the SEC regulations because the investment will be truly passive to them? Just wondering if the family issue changes that.

3. Is there any way to structure the LLC as member managed, but only have certain members have limited rights to vote on "some" things, making it "Active" instead of "passive" to avoid the securities issue, if it is indeed an issue (from question #2). If so, things can be divvied up by ownership percentages and tasks among the different members. Any drawback to this?

4. I was reading the foriegn LLC members need to register for tax ID numbers with the IRS and 35% of profits need to be withheld and taxes be paid on a quarterly basis. That's new to me, anyone have experience with helping foreign investors with this?

Maybe @Ben Leybovich can drop some wisdom from experience with Syndication? Heya Big Ben!

[Steven Hamilton II]

Originally posted by @Mehran K.:

Hi Everyone! It's been a while :) I appreciate any help/responses in advance. I know this is definitely a question to be checked with lawyers/accountants, but it helps to know more before reaching out to them.

A business partner and I are entertaining the thought of bringing in some foreign money to tackle deals here in the US. The only structures I've used in all my LLC's are member-managed because it has always been a 50/50 partnership, so this structure is new to me.

Some details/notes/questions:

1. Current business partner & I already have an LLC together, so likely that LLC will be the managing member.

2. Foreign Investors are Family members of my business partner and we did not solicit them for money, they came to us. With them being family and reaching out to us, would we still have to deal with all the SEC regulations because the investment will be truly passive to them? Just wondering if the family issue changes that.

3. Is there any way to structure the LLC as member managed, but only have certain members have limited rights to vote on "some" things, making it "Active" instead of "passive" to avoid the securities issue, if it is indeed an issue (from question #2). If so, things can be divvied up by ownership percentages and tasks among the different members. Any drawback to this?

4. I was reading the foriegn LLC members need to register for tax ID numbers with the IRS and 35% of profits need to be withheld and taxes be paid on a quarterly basis. That's new to me, anyone have experience with helping foreign investors with this?

Maybe @Ben Leybovich can drop some wisdom from experience with Syndication? Heya Big Ben!

 Do you want the good news or the bad news?

2. I would not be too worried about it but I would document how they came to you. If that partner is invested as well I would not be as worried either, but I'd confirm with an attorney. It would be worth paying for an hour or two of research for the peace of mind.

3. Yes, you can do that. You can have partners who are limited. But for large decisions can reach out to all members for a decision.

4. Yes, that will be a major issue. Direct quote from IRS "Note: The withholding tax rate for effectively connected income allocable to non-corporate foreign partners is 39.6%, and remains at 35% for corporate foreign partners."  That also assumes no state mandated withholding for NRAs or non-residents.