The principal forms of business entities used by Canadian
investors engaged in a business in the United States
include corporations, partnerships, limited liability
companies, joint ventures, and branches. The United
States does not have a federal law relating to the
organization of a business entity. Therefore, unlike
Canada, there are no federal private corporations.
Rather, business entities in the United States are
organized under the laws of one of the 50 states,
the District of Columbia, or Puerto Rico.
1. Corporations
The corporate form provides the Canadian investor with
significant advantages, including ease of transfer
of ownership, perpetual existence, and limited liability
for the owners. However, shareholders may not be
protected from certain types of obligations arising
under tax
and
employment laws. Nevertheless, organizing as a U.S.
corporation rather than as a branch provides a certain
level of confidentiality
regarding the origins of business ownership. This
may be preferable from a marketing standpoint where
U.S.
origin is important and, from a tax perspective,
to avoid having to report worldwide activities of
related
non-U.S.
companies to U.S. governments.
2. Partnerships, Limited Liability Companies, and
Joint Ventures
Partnerships, limited liability companies (“LLC”),
and joint ventures generally are formed by contract among
the owners. In most U.S. jurisdictions, corporations
can be owners of the partnership (a “partner”)
or a limited liability company (a “member”).
U.S. partnerships have the same basic attributes
as Canadian partnerships. Individual partners
include their shares
of partnership profit or loss on their individual
income
tax returns. The partnership is not a taxable
entity and files tax returns for information
purposes
only.
The LLC is a hybrid entity. It combines the
tax advantages and management flexibility
of a partnership
with
the limited liability characteristics of
a corporation. As mentioned above, the LLC is
formed by contract
(the “Limited
Liability Company Agreement” or “Operating
Agreement”) among the members. Unless it elects
to be treated like a corporation, the LLC is taxed under
the partnership provisions of the Internal Revenue Code.
The members include their share of LLC profits on their
own tax returns. The Canada Revenue Agency generally
taxes LLCs as corporations rather than as partnerships.
The Canada Revenue Agency also has indicated that LLCs
do not qualify as “residents” under the Canada-U.S.
Income Tax Convention (the “Tax Treaty”)
and, therefore, do not qualify for Treaty benefits. The
tax implications of an investment by Canadians in a U.S.
LLC should be considered carefully. See the discussion
in the Tax Considerations section.
A joint venture is typically formed to carry
out a specific business enterprise or purpose
and is
terminated
when
that purpose has been accomplished. Joint
ventures between two or more corporations
permit several
entities to contribute
their special abilities, thereby forming
an enterprise that has greater potential
than
any of the joint
venturers could have their own. Often joint
venture parties will
form a separate limited purpose business
entity to conduct the joint venture activities.
Absent
a separate
business
entity, joint ventures are generally taxed
as partnerships.
3. Branches
For the foreign corporate investor to establish
a branch in the United States, the
foreign parent corporation
must qualify to do business under the
laws of the state
in which the branch will be established.
Normally, qualification is obtained
by filing certain
information with the Secretary
of State of the state where qualification
is sought and undertaking to fulfill
certain obligations
pertaining to that state's regulation
of businesses, taxation,
access
to suit and the like.
Unlike the formation of a U.S. subsidiary
corporation, a branch subjects the
foreign parent corporation
to liability for the debts of the branch
and may avoid
the appearance
of a “U.S. presence.” In certain circumstances,
particularly where losses are anticipated during the
start-up stage that could be used to offset profits earned
in the foreign jurisdiction, branch operations may be
advisable.
Disclaimer
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"The
information contained herein is of a general nature and
is not intended to address the circumstances of any particular individual
or entity. Although we endeavor to provide accurate and
timely information, there can be no guarantee that such information
is accurate as of the date it is received or that it
will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough
examination
of the particular situation.
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Hodgson
Russ has more than 230 attorneys practicing
in all major areas of law and one of the largest
Canadian practice groups among U.S. law firms. With a particular emphasis on providing corporate
and securities advice, Hodgson Russ serves
companies including privately held and publicly
traded corporations, multinational Canadian
companies and emerging growth start-ups. Hodgson
Russ attorneys assist clients with a wide range
of cross-border legal issues, including public
offerings and SEC compliance, mergers and acquisitions,
tax structuring, immigration, and intellectual
property. In addition, we have extensive experience
in assisting Canadian companies in all aspects
of establishing and conducting operations in
the U.S. Our strength is our experience in
understanding the needs of Canadian clients
as they relate to U.S. business matters.In addition to our Toronto location, Hodgson
Russ has offices in New York City, Albany,
Buffalo, and Johnstown, New York, and Boca
Raton, Florida. Practice restricted to U.S. law. |
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