E2 Business in the United States: Corporation or LLC? : 5 minutes read
Are you forming a company to pursue a United States E2 visa? If so, it is best to understand the options available to you, specifically regarding the selection between a standard corporation or a limited liability corporation (LLC). Each business type incurs a different set of tax implications, along with other unique rules, so it is important to do your research and speak with legal and financial professionals to make the decision that is right for you and your business. Remember, the business structure type is required information for your E2 application, so it is something you need to define and present in your business plan with the help of your business immigration attorney.
As a professional tip, remember: regardless of the type of business you select, keep detailed and accurate financial records of your business profit and expenditures. While not all business types require it, such as the LLC, it is a best practice to get used to and to become familiar with in case you ever become a part of a larger corporation.
First, a reminder on who is eligible for the E2 visa. Applicants must:
- Hold citizenship of a country that has a signed treaty of commerce and navigation with the U.S.
- Invest or be actively investing in a significant amount of capital in a United States bona fide enterprise.
- Enter the U.S. to fully develop and manage the investment and company.
- Show at least 50% of company ownership or obtain control of operations by director, manager, or other corporate position.
Now, let’s move on to some things to consider when classifying your business.
When to establish your business as an LLC
The size of your business is a large factor in what type of entity to identify as. For example, if you are an individual who’s coming here to start a business, you could form a single-member LLC. This type of business doesn’t file a tax return, you report the income and the expenses of the LLC on your tax return, and you pay tax as though it is your individual income. More simply, 100% of what you make as an LLC is subject to self-employment taxes, social security, and Medicare tax. There is one layer of tax on net business income at individual tax rates up to 39.6% for individual owners.
If there is more than one person, the LLC is treated as a partnership for tax purposes, and it files a tax return Form 1065, and each partner will report individually on their tax return and pay their own share of the tax. Partners must issue statements to all owners/partners with respect to their share of income, gains, losses, and deductions.
When to choose a Corporation (C)
Corporations are an entirely different level of business in many ways. They can be sued, they are taxed, and they can have shareholders. They are also more intensive in terms of time and energy to operate and follow the rules of the US Government. Furthermore, they are also required to have a formal structure with directors and officers, board meetings, board resolutions, annual meetings, and more.
C Corporations have two layers of taxes, and they are the type of business classification that many of the big corporations are that you see in the news and on TV, such as publicly traded companies. In a C corp, the corporation files its own return, pays its own tax, and then when it distributes the profits to the owners, it does so in the form of dividends, and it gets taxed twice as a dividend on the owner’s individual tax return. Another key benefit of a C corp is that you can get a deduction for 100% of your health insurance and your medical costs, which no other business types offer as a comprehensive deduction.
Closing thoughts
As you can see, there are many options available to you when you decide to register your business for the E2 visa application in the United States. Even more complex, you can register as one type of business and select to be taxed as another. To make the best decision for your business, you need to contemplate your short and long term business plans, as well as what states within the US you anticipate having operations and/or sales, and then consult a tax advisor. Additionally, if you are a foreign national with businesses in other countries, such as your native country, you want to review your options with a financial professional that understands worldwide taxation.
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