How I Set Up My Business Entity Structures in the U.S. as a Non-U.S. Citizen

Starting and growing a business is already a significant journey, but as a non-U.S. citizen now residing in the United States, one of the most critical decisions I faced when starting my businesses there was selecting the right entity structures.

This choice wasn’t just about compliance—it was about creating a foundation that would optimize taxes, protect assets, and support long-term growth.

I realized early on that my choice of structure could greatly impact the growth, efficiency, and even the credibility of my businesses.

Therefore in this article, I want to share my decision-making process for setting up my business entities, from selecting an S-Corporation for my Wellness Senior Living Assisted business to establishing an LLC for my education and consultancy business.

I’ll also discuss why I chose to have my S-Corp own my LLC and how this setup provides benefits like tax optimization, liability protection, and scalability.

Lastly, I’ll walk you through my steps to assign ownership of my businesses to a revocable living trust, ensuring long-term security and continuity.

This journey has been one of learning, planning, and trusting the process—and I hope sharing it will help anyone navigating similar decisions.

How I Set Up My Business Entity Structures in the U.S. as a Non-U.S. Citizen

1. Choosing Entity Types:

Choosing S-Corp for My Wellness Senior Living Assisted Home Business

S-Corporations are often great for businesses with higher profits because they allow for pass-through taxation while avoiding double taxation (as with C-Corps).

Here’s why I chose this structure:

• Why S-Corp?
  • You can save on self-employment taxes by paying yourself a reasonable salary and taking the rest of the profits as distributions, which are not subject to payroll taxes.
• Key Benefit: For a Wellness Senior Living Assisted Home, an S-Corp can minimize tax liability.

Steps to Register the S-Corp

• File the necessary documents (e.g., Articles of Incorporation) with the state I establish the S-Corp.
• Obtain an Employer Identification Number (EIN) from the IRS for the S-Corp.
• Elect S-Corp tax status by filing IRS Form 2553.

Advantages:

1. Tax Savings:
   • Tax savings through reasonable salary and distribution of profits.
2. Professional Image:
   • An S-Corp adds credibility to my senior home business, particularly if I seek investors or partnerships.
3. Profit Distribution Flexibility:
   • As an S-Corp, you have control over how much to take as salary versus distributions, optimizing taxes.

Disadvantages:

1. Administrative Burden:
   • S-Corps require more compliance, including maintaining a payroll system, filing quarterly taxes, and adhering to corporate formalities.
2. Less Flexibility in Ownership:
   • S-Corps have restrictions on ownership (e.g., no non-resident alien shareholders and a maximum of 100 shareholders).
3. Potential High Initial Costs:
   • The administrative costs might outweigh the tax benefits for a business that isn’t generating significant profits initially.

Choosing LLC for My Education, Training and Consultancy Business

For my education and consultancy business, I opted for a Limited Liability Company (LLC).

The LLC structure is flexible and cost-effective, offering flexibility in taxation and management structure, making it a good choice for a smaller or less complex business with fewer operational complexities.

Why LLC?

• Limited liability protection.
• Simplicity in setup and management.
• Flexible taxation options (default as a pass-through entity).

Key Benefit: The LLC structure is ideal for a business like an education and consultancy business due to liability concerns, as it protects your personal assets from potential business-related risks.

It also has Flexible Taxation Options: where it can be taxed as a sole proprietorship, partnership, or even an S-Corp.

Steps to Register the LLC

• During the LLC registration process:
  • The S-Corp’s details was used when setting up the LLC’s ownership structure.
  • The S-Corp was made the sole member (owner) of the LLC and was listed in the Articles of Organization

Advantages:

1. Simplicity:
   • LLCs are easy to set up and manage, making them ideal for a consultancy business with fewer operational complexities.
2. Flexibility in Taxation:
   • An LLC can be taxed as a sole proprietorship, partnership, or even an S-Corp if it becomes profitable enough to justify it.
3. Lower Operating Costs:
   • There are fewer compliance requirements, which keeps administrative costs low.

Disadvantages:

1. Self-Employment Taxes:
   • If taxed as a sole proprietorship or partnership, all profits are subject to self-employment taxes.
2. Growth Limitations:
   • While flexible, an LLC might not offer the same perception of professionalism as an S-Corp when scaling the business.

Now That My S-Corp Now Own the LLC –Ownership Structure

So now that everything is streamlined and my S-Corp now owns my LLC. Therefore when an S-Corporation owns an LLC, the LLC becomes a subsidiary of the S-Corp.

The S-Corp is the “parent company,” often called a “parent-subsidiary” structure and the LLC is its “owned entity.”

This is a common setup for managing multiple businesses under one overarching entity.

How It Works:

The S-Corp will act as the parent company, owning 100% of the LLC, which becomes a subsidiary.

This setup allows the S-Corp to consolidate resources, manage liability, and potentially streamline operations.

• When the LLC is formed, an Operating Agreement was executed stating that the S-Corp is the sole owner of the LLC.
• The LLC’s profits, losses, and expenses no longer flow directly to your personal taxes. Instead, they flow through to the S-Corp as its owner.
• The S-Corp combines the LLC’s financial activity with its own for tax and accounting purposes.
• Internal documents for the S-Corp is created to formally record its investment or ownership of the LLC.

Taxation of the LLC

Default Tax Treatment

• Since the LLC is a single-member LLC it is treated as a disregarded entity for tax purposes. This means:
  • The LLC’s income and expenses flow directly to the S-Corp.
  • The LLC itself doesn’t file a separate federal tax return (unless it opts for corporate taxation).

Opting for Tax Elections

• The LLC can elect to be taxed as an S-Corp or C-Corp, but since it’s owned by an S-Corp, it typically remains a pass-through entity.
• This allows the S-Corp to aggregate the LLC’s financial data with its own.

How Income and Expenses Flow

Example:

• Assume the LLC generates $100,000 in revenue and incurs $30,000 in expenses, leaving a $70,000 net profit.
• The S-Corp, as the sole owner, records the LLC’s net profit of $70,000 as part of its overall income.
• If the S-Corp has additional revenue (e.g., $50,000 from another business activity), it combines this with the LLC’s income, totaling $120,000 in revenue for tax purposes.

Key Points:

• All income from the LLC flows through to the S-Corp’s tax filings.
• The LLC’s operating expenses are deducted from its revenue before passing the net profit to the S-Corp.
• The S-Corp files a single corporate tax return (Form 1120-S), which includes the LLC’s financials.

Filing Taxes

S-Corp’s Tax Responsibilities

• The S-Corp files an annual tax return using Form 1120-S.
• The total income (including that from the LLC) is reported on the S-Corp’s return.
• The S-Corp issues K-1 forms to its shareholders (you) for their share of profits, which you report on your personal tax return.

LLC’s Tax Responsibilities

• The LLC does not file a separate federal income tax return (unless required at the state level).
• Instead, its financial activity is reported under the S-Corp.

Benefits of this Setup

1. Tax Optimization and Efficiency:
   • By having the S-Corp own the LLC, you centralize profits, enabling better control over distributions and salaries for tax efficiency.
   • S-Corp shareholders can receive distributions not subject to self-employment taxes. It also helps to minimize self-employment taxes, while the LLC maintains operational flexibility.
2. Liability Protection:
   • The LLC’s operations are legally separate from the S-Corp’s operations, making them separate legal entities, limiting liability risks between them thus adding an extra layer of liability protection for the S-Corp.
3. Centralized Management:
   • Financial activities of both businesses (the LLC and the S-Corp) are managed under one entity (the S-Corp), simplifying oversight.
4. Scalability: This structure makes it easier to add other businesses or ventures in the future under the S-Corp umbrella.

Key Considerations

• Record Keeping: Maintaining separate financial records and bank accounts for the S-Corp and the LLC is important to ensure compliance, transparency and to preserve their legal distinction.
• State-Level Taxes: Some states may require the LLC to file a separate return or pay franchise taxes even though it’s owned by the S-Corp.
• Professional Guidance: Working with a CPA or tax professional is helpful to ensure proper setup and compliance with federal and state tax laws.
• State Compliance: It is important to ensure all state-specific requirements for forming and maintaining both entities (e.g., annual reports, fees).

assigning a revocable living trust to own and manage my businesses

To ensure long-term continuity and avoid probate, I assigned ownership of my businesses to a revocable living trust.

1. Understanding the Role of the Trust

• A Revocable Living Trust allows you (the grantor) to retain control of your assets while you’re alive and designate how they are managed or distributed upon your passing.
• The trust becomes the legal owner of your business interests, but as the trustee, you maintain control during your lifetime.

2. Steps to Transfer the Businesses to the Trust

Step 1: Create the Revocable Living Trust

• Work with an estate planning attorney to draft the trust document.
• The trust will identify you as the grantor and trustee and name your beneficiaries (e.g., family members, heirs).

Step 2: Assign Ownership of the S-Corp to the Trust

• Amend the S-Corp’s Ownership Records:
  • Update the stock certificates (if applicable) to reflect that the trust is the owner of the shares in the S-Corp.
  • List the trust as the shareholder in the corporate records, such as the stock ledger and corporate minutes.
• IRS Notification:
  The IRS does not require notification for this change unless it affects the S-Corp’s shareholder eligibility (e.g., non-US citizens or entities become shareholders). A properly structured revocable trust remains eligible to own S-Corp shares.

Step 3: Assign Ownership of the LLC to the Trust

• Update LLC Operating Agreement:
  Amend the LLC’s operating agreement to list the trust as the sole member of the LLC.
• File State Records (if required):
  Depending on the state, you may need to file an amendment to the LLC’s Articles of Organization or other public documents to reflect the change in ownership.
• IRS Notification:
  No notification is generally required unless the tax classification of the LLC changes.

Step 4: Update Financial and Operational Accounts

• Update the business bank accounts, licenses, and any contracts to reflect the trust as the owner.
• Provide a copy of the trust (or a certification of trust) to relevant financial institutions or business partners if requested.

3. Maintaining Control and Flexibility

• As the trustee, you retain full control over the S-Corp and LLC, including their operations and finances.
• You can revoke or modify the trust at any time during your lifetime.

4. Benefits of a revocable trust Setup

• Avoids Probate: Placing the businesses in the trust ensures they pass directly to your heirs without going through probate court.
• Continuity of Operations: The trust can specify how the businesses are to be managed or transitioned upon your incapacity or passing.
• Privacy: Unlike a will, the trust’s terms are not public record.

5. Potential Challenges

• S-Corp Compliance: Ensure the trust qualifies as a permitted shareholder for the S-Corp under IRS rules (grantor trusts are generally allowed).
• Management Complexity: Keeping the trust updated with new assets or changes in business structure requires diligence.

Conclusion

Choosing the right entity structure is a pivotal step in setting up a business, especially when considering factors like tax efficiency, liability protection, and long-term planning.

For me, aligning these decisions with my goals and current circumstances as a non-U.S. citizen residing in the U.S. was essential.

The S-Corp and LLC structures, along with the trust setup, not only reflect the vision I have for my businesses but also provide a strong foundation for growth, security, and sustainability.

I encourage you to explore the options that align with your own goals and seek professional guidance where needed.

Remember, every decision you make in your business journey should support not just the present but the future you’re building toward. Let’s continue to learn and grow together!