Legal Question in Business Law in California

Re: Adding Foreign Partner

First, there is no limitation on citizenship for LLC Members. It does not matter, for purposes of formation, where the Members reside or have citizenship.

Second, it is possible the having a non-US owner could limit your ability to obtain certain government contracts. Short of that, there isn't much to be concerned about. Your third partner may find himself suddenly subject to US taxation, so that is something to consider.

Finally, why did you choose an LLC? It is often a good choice, but not always. It can provide for limited liability and pass through taxation, which makes it a good vehicle for small, partnership type businesses.

I recommend reviewing your set-up with an attorney and an accountant before finalizing anything.

Re: Adding Foreign Partner

First, it is better to think of LLC participants as 'members' than as 'partners' because the latter term might imply a partnership, which as you know is a different species than an LLC.

There is no limitation upon who can be a member of an LLC, either as to citizenship, residency, or nature of 'person' - i.e., LLCs can have entities such as corporations, partnerships and other LLCs as members as well as individuals. The only possible limitation could be that members who were not legal adults might lack legal capacity to enter into the required operating agreement.

Having a nonresident alien as a member may subject that member and/or the LLC to various IRS regulations such as backup withholding of US income taxes. I don't see this as an obstacle but you should consult your tax advisor on this.

The two principal documents used in forming and operating an LLC are the Articles of Organization (filed with the Secretary of State with Form LLC-1) and the operating agreement. In drafting each of these, especially the latter, the remote location of the nonresident member should be considered. For example, it may affect meeting notice requirements.

As to 'dangers,' in any association of diverse individuals to pool money and conduct a business there is substantial risk of personality conflicts, misunderstandings, mistrust, etc., and the greater the cultural and linguistic diversity, the greater the potential for such conflicts.

Therefore, the best advice is to have all your LLC documentation crisp, complete and professional so that when the finger-pointing begins, you have clear documentation of the members' rights, assumptions, understandings, duties and limits.

Re: Adding Foreign Partner

Adding a foreign member to a LLC is not a problem, but you should discuss with your attorney and accountant whether the LLC is the best business entity for you.

If you need a business lawyer in San Jose, please feel free to call me at 408-985-7575.

Re: Adding Foreign Partner

Sure its possible. The dangers have more to do with who the partner is, what its role will be and how to protect the business against a breach of the foreign partner's obligations.

You will need to find an attorney you are comfortable working with to work these things through and to represent you in handling all documentation. Certain conflicts of interest will arise and that may require the involvement of other attorneys from time to time.