Foreign Partners: Delaware Business Law Considerations

Foreigners can form a Delaware LLC or Corporation, and Delaware's business statutes are also attractive to foreign businesses seeking a home for their U.S. business ventures. The state provides a number of advantages to international businesses, including efficient procedures for business combinations and transactions, such as mergers, transfers, and conversions. Delaware also allows for business combinations with a wide variety of entities, including foreign and domestic entities, and provides flexibility for international commerce to form business entities other than corporations, such as limited liability companies and limited partnerships. However, there are some requirements that foreigners must meet when forming a Delaware LLC or Corporation, including registering with the U.S. on the FBAR form if they have $10,000 or more connected to the company and reporting income substantially connected to the U.S. to the IRS.

Foreigners can form a Delaware LLC

Delaware's corporate law structure does not impose restrictions on ownership or management of a Delaware company by a non-resident of the United States. This means that starting a corporation or LLC for a non-US resident doesn't require an address in the State of Delaware or even in the United States. However, all businesses owned by non-US persons must register with the US on the FBAR form if they ever have $10,000 or more connected to the company. Additionally, income that is substantially connected to the United States must be reported to the IRS.

Delaware enables business owners to create entities through a relatively simple and efficient process. The state provides expedited processing of documents and accepts filings electronically. There is no requirement to be a US citizen or resident to incorporate in Delaware, and non-residents that form a business in Delaware will not have any information available for public record.

To form a Delaware LLC, you will need to enlist the services of a Delaware Registered Agent. All Delaware companies are required to retain a Registered Agent, who acts as the liaison between the company and the Delaware Secretary of State. The Registered Agent must have a physical street address in Delaware and be available during normal business hours.

There are a number of other requirements to form a Delaware LLC, including obtaining a Certificate of Formation/Incorporation, and registering an entity name with the Delaware Division of Corporations. You will also need to obtain a Federal Tax ID Number (EIN) if you are conducting lawful business activities, opening a bank account, or hiring employees in the US.

Non-US citizens can't be shareholders in S-corps

Foreigners or non-US citizens can own businesses in the state of Delaware. The state's business statutes are attractive to foreign businesses seeking a home for their US business ventures. Delaware's corporate law structure does not impose restrictions on ownership or management of a Delaware company by a non-resident of the United States. This means that starting a corporation or LLC for a non-US resident does not require an address in the State of Delaware or even in the United States.

However, non-US citizens cannot be shareholders in S-corps. According to the IRS, a non-resident alien is an individual who is not a US citizen or a US resident alien. A US resident alien is an individual who is not a US citizen or US national and who meets either the "green card test" or the "substantial presence test" for each calendar year. To qualify for S-corporation status, the corporation must meet certain requirements, including not being an ineligible corporation. Ineligible corporations include certain financial institutions, insurance companies, and domestic international sales corporations.

Foreigners who are residents of the United States (US resident aliens) may own some US companies. Resident aliens, also referred to as US residents, can own shares in an S corporation. However, non-resident aliens cannot own shares in an S corporation. Before 2018, there was no way for non-residents to own shares of an S corporation. However, non-resident aliens can now invest in these companies through an Electing Small Business Trust (ESBT).

It is important to note that a non-US citizen or a non-resident alien who wants to start a Delaware company must register with the US on the FBAR form if they ever have $10,000 or more connected to the company. Additionally, income that is substantially connected to the United States must be reported to the IRS. If a non-US citizen plans on using their Delaware business in their home country, they may need an Apostille or document legalization for transactions or government compliance in their home country.

Foreigners must register with the US on FBAR form

Foreigners can form a Delaware company as a non-resident and operate lawful business activities from anywhere in the world. Delaware's corporate law structure does not impose restrictions on ownership or management of a Delaware company by a non-resident of the United States. This means that starting a corporation or LLC for a non-U.S. resident doesn't require an address in the State of Delaware or even in the United States.

However, all businesses owned by non-U.S. persons must register with the U.S. on the FBAR form if they ever have $10,000 or more connected to the company. FBAR stands for Report of Foreign Bank and Financial Accounts. It is a mandatory requirement for any company conducting lawful business activities, opening a bank account, or hiring employees in the United States. The FBAR is an annual filing, and the deadline for the 2024 FBAR is the same as your income tax return due date, usually April 15, with an automatic extension to October. The FBAR must be filed electronically through FinCEN's BSA E-Filing System, although paper filing is possible by requesting an exemption from FinCEN.

The FBAR is used to report foreign financial accounts such as bank accounts, brokerage accounts, and mutual funds to the Treasury Department. The form must be used to report a financial interest in or signature or other authority over at least one financial account located outside the United States if the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported. Foreign retirement accounts may also have to be included, such as Canadian Registered Retirement Savings Plans (RRSP) and Australian Superannuation funds.

There are penalties for not filing the FBAR, or for filing late or incorrectly. These penalties can be up to $10,000 per violation, even if the violation was unintentional. If the violation is intentional, the penalty can be much steeper, at $100,000 per violation or higher, depending on the account balance.

Foreign judgements can be enforced in Delaware

Foreign judgments can be enforced in Delaware. The state has a well-established legal system and is known for its business-friendly laws, making it a popular choice for companies operating in multiple countries.

Delaware's Court of Chancery, which specialises in corporate law, generally enforces choice of forum and choice of law agreements for other jurisdictions, including those outside the United States. This means that if a judgment is entered in a foreign jurisdiction, it may be enforced under Delaware law.

The process for enforcing a foreign judgment in Delaware is outlined in the state's code. A copy of the foreign judgment must be authenticated in accordance with an act of Congress or the statutes of the state of Delaware. This copy can then be filed in the office of any prothonotary of the state. The prothonotary will treat the foreign judgment in the same manner as a judgment of the Superior Court of Delaware. Once filed, the foreign judgment has the same effect as a local judgment and is subject to the same procedures, defences, and proceedings for reopening, vacating, or staying.

It's important to note that if the judgment debtor can show that an appeal from the foreign judgment is pending or will be made, the Court shall stay enforcement of the foreign judgment until the appeal is concluded or the time for appeal expires. Additionally, no execution or other process for enforcement of a foreign judgment shall issue until 20 days after the judgment is filed.

Delaware's business statutes provide several advantages for international businesses. The state allows for a wide variety of business combinations, including mergers, transfers, and conversions, with both foreign and domestic entities. It also provides alternative methods for these combinations, such as asset sales, and does not require state-level judicial or regulatory approval before entities can enter into these combinations.

Overall, Delaware's legal system is designed to be efficient and flexible for businesses, including those with foreign operations or ownership.

Foreign businesses can benefit from Delaware's business statutes

Secondly, Delaware's business statutes provide numerous advantages to international businesses. The statutes are regularly reviewed and updated with input from attorneys specializing in Delaware business entities, ensuring they meet international quality standards. Delaware enables business owners to create entities through a relatively simple, efficient, and flexible process, with the Secretary of State providing expedited processing of documents and accepting electronic filings.

Thirdly, Delaware law provides efficient procedures for business combinations and transactions, including mergers, transfers, and conversions. It offers alternative methods for business combinations, such as mergers and asset sales, and allows combinations with a wide range of entities, including foreign and domestic ones. No state-level judicial or regulatory approval is needed for these combinations, providing clarity and ease for international investors.

Additionally, Delaware's Court of Chancery, the oldest business court in America, uses judges instead of juries, leading to faster and more informed legal decisions. The court specializes in corporate law, ensuring predictable results and decreased liability for Delaware LLCs and corporations.

Moreover, Delaware provides substantial flexibility in management and ownership structures. It allows just one person to be the director, shareholder, and officer of a corporation, and management and investors can make decisions electronically from anywhere in the world.

Lastly, Delaware offers tax advantages to foreign businesses. Companies operating outside of Delaware are not subject to state income tax, resulting in significant tax savings.

Overall, Delaware's business-friendly laws, efficient entity creation processes, flexible management options, advanced legal system, and tax benefits make it an attractive choice for foreign businesses seeking to establish their ventures in the United States.

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