How does LLC ownership work in relation to U.S. tax law?
It really depends.  If it is offered as compensation (ie in leiu of, or in addition to salary or cash bonus) then it would be reportable income, and if sold later for a profit then that would be taxable as gains.  If this share is purchased as an investment at current value then it would be treated like other securities most likely gains realized at sale.  Any discount could be considered income but there are some goofy rules surrounding this enacted to prevent tax evasion and some to spur growth.  That is the answer in a nut shell.  It is far more complicated in reality as there are somewhere around 2000 pages of regulations deal with different exceptions and scenerios.
"S-Corp are taxed very different. Unlike LLC where you just add the profit to your income with S-Corp you have to pay yourself a ""reasonable"" salary (on w-2) which of course is a lot more paperwork. I think the advantage (but don't hold me accountable for this) is if your S-Corp makes a lot more than a reasonable salary, then the rest of the money can be passed through on your personal return at a lower (corp) rate." I took littleadv's advice and talked to an accountant today. Regardless of method of payment, my US LLC does not have to withhold taxes or report the payment as payments to contractors (1099/1042(S)) to the IRS; it is simply a business expense.  He said this gets more complicated if the recipient is working in the US (regardless of nationality), but that is not my case Here is the solution: any money made inside the United States will be taxed under US tax law.  You want to do business here, open up a US headquarters that handles all the sales tracking and reporting. No tax dollars, no operations inside the US.   The united states carries such bulk buying power that companies will be forced to abide by its rules. If I understand you right, people are giving the LLC money for an ownership share.  That is NOT income - it would go under equity on the balance sheet.  It is analogous to getting a loan from the bank.  It is not income - you get cash (an asset) and have an increase to debt (a liability) "This is actually quite a complicated issue. I suggest you talk to a properly licensed tax adviser (EA/CPA licensed in your State). Legal advice (from an attorney licensed in your State) is also highly recommended. There are many issues at hand here. Income - both types of entities are pass-through, so ""earnings"" are taxed the same. However, for S-Corp there's a ""reasonable compensation"" requirement, so while B and C don't do any ""work"" they may be required to draw salary as executives/directors (if they act as such). Equity - for S-Corp you cannot have different classes of shares, all are the same. So you cannot have 2 partners contribute money and third to contribute nothing (work is compensated, you'll be getting salary) and all three have the same stake in the company. You can have that with an LLC. Expansion - S-Corp is limited to X shareholders, all of which have to be Americans. Once you get a foreign partner, or more than 100 partners - you automatically become C-Corp whether you want it or not. Investors - it would be very hard for you to find external investors if you're a LLC. There are many more things to consider. Do not make this decision lightly. Fixing things is usually much more expensive than doing them right at the first place." An LLC is a pass-through entity in the USA, so profits and losses flow through to the individual's taxes.  Thus an LLC has a separate TIN but the pass-through property greatly simplifies tax filings, as compared to the complicated filings required by C-corps. I realize this is a dated question, but for anyone interested in this subject please be aware of the availability of IRC § 1235 and capital gain treatment for the sale of patents.  When the holder of a patent transfers all substantial rights to an unrelated person, it can qualify for long-term capital gain treatment.  That can be a meaningful tax savings relative to ordinary income treatment. There are a number of specific provisions and requirements to access § 1235.  The holder must be the creator or someone unrelated (and not the creator's employer) who purchased the patent from the creator.  The holder must transfer all substantial rights to the patent (not a licensing), or sell an undivided portion of all substantial rights (partial sale, again not a license).  The benefit of § 1235 is that long-term treatment will apply even for patents with holding periods under 1 year.  Other rules and permutations of course also apply.  Those who fail § 1235 may still qualify their assets as capital under § 1221 or § 1231.  A patent held by its creator will often qualify as a capital asset. It may not make any sense to sell your business as a whole, particularly if all a purchaser wants is a patent or group of patents.  Of course, if the patent was held by its creator in a single-member LLC or other disregarded entity sold to a buyer, then the tax treatment is still treated as the sale of a long-term capital asset. "Assuming you are talking about an LLC in the United States, there are no tax repercussions on the LLC itself, because LLCs use pass-through taxation in the U.S., meaning that the LLC does not pay taxes. Whatever you take out of the LLC in the form of distributions goes onto your personal income tax as ordinary income, and you pay personal income tax on it.  See this link on the subject from the Nolo.com web site: Tax treatment of an LLC from the Nolo.com web site Repayment of your loan by the LLC would just be another business expense for the business itself.  I guess the question would then turn on what your personal tax repercussion would be for payments received from the LLC on the loan.  I would guess (and I emphasize ""guess"") that you would pay tax on any interest gain from the loan payments, which makes the assumption you made the loan to include interest.  If not (in other words, if you made this an interest-free loan) then it would be considered a wash for tax purposes and you would have no tax liability for yourself. To reiterate, the LLC (if it is a U.S.. entity) does not pay taxes.  Taxation of LLC income is based on whatever distributions the principals take out of it, which is then claimed as taxable personal income. My apologies to littleadv for not making my prior answer (I deleted it) more clear about my answer assuming you were speaking of a U.S.-chartered LLC. I hope this helps. Good luck!" "If you start an LLC with you as the sole member it will be considered a disregarded entity.  This basically means that you have the protection of being a company, but all your revenues will go on your personal tax return and be taxed at whatever rate your personal rate calculates to based on your situation.  Now here is the good stuff.  If you file Form 2553 you can change your sole member LLC to file as an S Corp.  Once you have done this it changes the game on how you can pay out what your company makes.  You will need to employ yourself and give a ""reasonable"" salary.  This will be reported to the IRS and you will file your normal tax returns and they will be taxed based on your situation. Now as the sole member you can then pay yourself ""distribution to share holders"" from your account and this money is not subject to normal fica and social security tax (check with your tax guy) and MAKE SURE to document correctly.  The other thing is that on that same form you can elect to have a different fiscal year than the standard calendar IRS tax year.  This means that you could then take part of profits in one tax year and part in another so that you don't bump yourself into another tax bracket.  Example:  You cut a deal and the company makes 100,000 in profit that you want to take as a distribution.  If you wrote yourself a check for all of it then it could put you into another tax bracket.  If your fiscal year were to end say on sept 30 and you cut the deal before that date then you could write say 50,000 this year and then on jan 1 write the other check." "Depends on the State. In California, for example, you pay a franchise tax of $800 every year just for having LLC, and in addition to that - income tax on gross revenue. But in other States (like Wyoming, for example) there's no taxes at all, only registration fees (which may still amount to ~$100-300 a year). IRS doesn't care about LLC's at all (unless you chose to treat is as a corporation). You need to understand that in the US we have the ""Federal Government"" (IRS is part of that) and the ""State Government"" that deals with business entities, in each of the 50 States. Since you're talking about Italy, and not EU, you should similarly be talking about the relevant State, and not US." According to the W9 instructions you are considered a U.S. person if: According to the following section, it looks like a C corporation may be easier then an LLC: All of this information can be found here: http://www.irs.gov/pub/irs-pdf/fw9.pdf Hope this helps! "There are TWO parts to an LLC or any company structure.  This being the entire point of creating an LLC.  The context is that a lawyer is after your LLC, and he's arguing that the LLC is not genuine, so he can go after your personal assets - your house, car, IRAs, tap your wife's salary etc.  This is called ""piercing the corporate veil"".  What would he use to claim the LLC is not genuine?  The determination here is between you and the judge in a lawsuit.  Suffice it to say, the way you withdraw money must consider the above issues, or you risk breaking the liability shield and becoming personally liable, which means you've been wasting the $25 every year to keep it registered.  The IRS has a word for single member LLCs: ""Disregarded entity"".  The IRS wants to know that the entity exists and it's connected to you.  But for reporting tax numbers, they simply want the LLC's numbers folded into your personal numbers, because you are the same entity for tax purposes. The determination here is made by you.  *LLCs are incredible versatile structures, and you can actually choose to have it taxed like a corporation where it is a separate ""person"" which files its own tax return. * The IRS doesn't care how you move money from the LLC to yourself, since it's all the same to them.  The upshot is that while your own lawyer prohibits you from thinking of the assets as ""all one big pile"", IRS requires you to. Yes, it's enough to give you whiplash." One possibility that I use: I set up an LLC and get paid through that entity. Then I set up a payroll service through Bank of America and set up direct deposit so that it is free.  I pay myself at 70% of my hourly rate based on the number of hours I work, and the payroll service does all the calculations for me and sets up the payments to the IRS.  Typically money is left over in my business account. When tax time rolls around, I have a W2 from my LLC and a 1099 from the company I work for. I put the W2 into my personal income, and for the business  I enter the revenue on the 1099 and the payroll expenses from paying myself; the left over in the business account is taxed as ordinary income. Maybe it's overkill, but setting up the LLC makes it possible to (a) set up a solo 401(k) and put up to $51k away tax-free, and (b) I can write off business expenses more easily. "That's a very clear explanation, thanks! So a few additional things if anyone will humor my curiosity...  1. By ""one-time"" tax, does that mean a company that has, say, $5B overseas could bring that back into the US and just be taxed $500M, then keep the remaining $4.5B?  2. Could a company choose a percentage of their overseas money to transfer into the US? Like, only bring in 8% of that $5B ($400M) and be taxed $40M, while keeping all the rest outside the US? Or would it be mandatory to bring it all over?  3. Would most companies just start that same practice of routing to tax havens again after this tax is implented?" First, yes, your LLC has to file annual taxes to the US government.  All US companies do, regardless of where their owners live.  Second, you will also probably be liable to personally file a return in the US and unless the US has a tax treaty with India (which I don't believe it does) you may end up paying taxes on your same income to both countries.  Finally, opening a US bank account as a foreign citizen can be very tricky. You need to talk to a US accountant who is familiar with Indian & US laws.