Several times each year, we are asked whether a non-United States citizen can own a business that was created in the United States or in Indiana, specifically. Generally, the answer is that a non-United States citizen, whether living here or abroad, can own an Indiana entity, but not every entity form. In this article, we focus on whether a non-permanent resident may own an S-corporation or a limited liability company. We assume that the subject entity is a small closely-held business operating in Indiana.
To start, it is important to determine the immigration status of the prospective business owner. We are primarily concerned with whether the prospective owner is a “permanent resident” or is in the United States on a visa that has a limited duration and that is not a visa that will lead to permanent residency under immigration law. If the prospective owner is not a permanent resident alien, then he or she may not own stock in an S-corporation. An S-corporation is simply a corporation that has taken the S-election to be treated as a small business whose profits or losses “flow through” the entity to its owners without the burden of first paying a corporate income tax. To state the rule of law more accurately, a corporation is not eligible to take the S-election, if one or more of its owners is a non-permanent resident alien.
However, a limited liability company may have as one of its owners a non-permanent resident alien. There is no similar restriction as is the case with the S-corporation.
The attorneys at GRIFFITH LAW GROUP have, on several occasions, formed a limited liability company owned in part by a non-permanent resident alien and then later, after the owner has obtain his “Green Card,” switched the entity from a limited liability company to an S-corporation. That is not always appropriate but is a good tax decision in certain cases. The decision to convert an LLC to an S-corporation is a decision that should be carefully made with the assistance of a good business attorney and a good CPA or other tax advisor.