People often ask me, “What is the best business structure/solution for global business?”
This is a very good question, but sadly leads to some very bad answers. People have a tendency to look at solutions in a rather simplistic manner, and then get surprised when their solutions do not really work. They go from “This is the greatest thing ever!!!” to “This is the worst thing ever!!!”
I prefer to use an Analytical Model to answer this question. This requires some time and patience.
Part of the problem is how service providers tend to market their products. They tend to focus on specific jurisdictions. Frankly, even I find myself doing this. Most of this website is aimed at selling my services to help you set up a US Limited Liability Company that can be used to give you access to banking, merchant services, investment opportunities, etc.
However, I begin my evaluation of a prospective client’s circumstance by analyzing his situation. I have a simple but important Analytical Model to help me to better understand what would be best.
I like to think of the various options as tools that can be used to help people do business. These tools are varied and depend a great deal upon what is needed. As the old saying goes, “If the only tool you have is a hammer every problem is a nail.” This way of thinking is unfortunate, dangerous, and unnecessary. I like to think of the various options as different tools in my tool kit. Some work better for some problems, others work better for others.
My first line of questioning is to discover the client’s current residency issues: What is your citizenship? Where are you living? Where would you like to live? What are the tax rules?
Not all countries are the same. For instance, someone from Sweden has almost no problems regarding residency if they want to “opt-out” of the system. They more or less only have to leave. People from other countries often have to deal with some remarkably difficult obstacles. So before I start talking about US LLCs, or UK LPs, or Georgian JSCs, etc. etc. etc. I first want to understand this issue.
Then I ask, “What do you want to do?” I like to know what you want to accomplish before I start trying to sell you a solution.
Yeah, I know that’s crazy.
Once I better understand the issue of residency and what the client really wants to accomplish, only then can I start thinking about which business structure(s) might be best. This is an area where people get very confused. Some company entities are better for certain situations than others. Some jurisdictions work better for some clients than for others. You have to take it case by case.
The biggest problem I encounter is “jurisdictionitis“: the irrational belief that one jurisdiction will magically solve all your problems. Even for the best of jurisdictions this is not the case. Delaware can be great for one client, and Texas might be better for another. The same goes for different countries as well.
For one client I spoke to about a year ago, because of his unique business and family situation combined with his citizenship, the ideal solution would have been very simple:
- to establish a residency in the Republic of Georgia due to its Territorial Tax Treatment,
- a US LLC to manage his professional consulting business, and
- a Georgian company to establish a new Internet venture.
Georgian residency would have been ideal since it is a “territorial” tax country for individuals (that is you only have to pay taxes on income you earn inside the country — thus his consultancy business outside would never be taxed), and his country of citizenship would have then considered him a non-resident and he would owe no taxes there. The US LLC would have allowed him to easily gain access to US banking making it easier for him to get paid from his US-based clients while avoiding US taxes since his business is outside the USA and the US LLC would be a considered a “disregarded” or a “pass through” entity in regards to US taxes. Finally, the Georgian company would have been ideal for the Internet venture because of something called the Virtual IT Zone Company which is a terrible name for an awesome tax exemption; any company in Georgia that is doing business in what the government loosely defines as IT can request a tax exemption for all income earned outside of the country in the IT industry — thus tax free.
Although these three separate solutions would not have been terribly expensive to set up or manage, and would have effectively resolved 100% of his problems, he only wanted one “thing” that would do it all for him. I honestly do not know of any such single “thing” that will accomplish all these tasks, but I hope if he finds it he will let me know — though I am not optimistic. I rather suspect he will end up getting cheated by some unethical practitioner who will lie to him, tell him what he wants to hear rather than the truth, and then sell him some outrageously priced solution that will not actually work for anything, and will most likely get the man into a great deal of legal trouble.
So there you have it. My Analytical Model for how to resolve these problems: analyze the residency issues of the proposed client, find out what the client actually wants to do, and then find the appropriate tool(s) to address those issues.