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Canadian individual/company forming US company?

Asked by: Celia  — 14 February, 2012

My husband & I own a Canadian company (selling electronics) and selling nominally but increasingly to the US. We plan on partnering with a Taiwanese supplier to ship products direct into the US using a 3rd party fulfillment warehouse in California and sell into the US via online sales.
1) Should we form a C-corporation or a LLC?
2) Should our Canadian company form the US company or should my husband and I (and our new partner) form the US company as individuals?
3) Would we get taxed in the US as a business or as individuals?

Thank you!

Answered by: admin  — 14 February, 2012

Dear Celia,

I think in your case a scenario you should consider is forming a US LLC in a state such as Delaware or Wyoming and make your Canadian company the owner. An typical LLC is a pass-though entity requiring minimum formalities and no quarterly reporting.

As far as taxation goes, since this is an international business you would need to retain an accountant specializing in international taxation. International taxation takes into account all existing treaties between the two countries, and an experienced international accountant would be in a better position to advise you how to properly distribute your US profit in order to minimize your taxes.

From my experience, one of the ways to simplify things for yourself would be to organize your business in a way that the US entity would always produce close to $0 profit. Since your Canadian company would provide management services to the US business, it can always charge the US company for that service. This way you essentially only deal with how much to pay in taxes in Canada, but again – this is something to ask your Canadian accountant as well.

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