LLC with Foreign Incorporated Corporation Memeber

[UPIAnswers]

Hello, I hope you guys can help me. I’m struggling with a complex entity formation (at least for me)!


I’m helping to form a 2-member LLC in the state of TX that will be providing IT consulting services and reselling software. The members will be:

* “UPI”: Domestic (TX) Corporation (Subchapter S) with a single shareholder
* “PSS”: Foreign (Indian) Private Limited Company (Pvt. Ltd.) with 9 Subscribers (i.e. shareholders)


Some other facts:

* The members anticipate Net Income of 2M in the first year of operation (2010)
* The LLC will operate as a partnership for tax purposes (to avoid double taxation)
* Each member will have a 50% stake, however, under the operating agreement, income and loss will be shared based on the type of revenue (i.e. the income will NOT be allocated according to ownership).
* Foreign employees of PSS may obtain L-1B Visas to live/work in the US from time-to-time.


I believe the correct path to formation would be:

* PSS files for EIN (SS-4)
* PSS to register with the TX Secretary of State (“For-Profit Corporation Application for Registration” - Form 301)
* PSS & UPI form LLC by filing “Certificate of Formation for a Limited Liability Company” (Form 205) with TX SOS


I believe the tax filing requirements would be as follows:

• LLC
  • Files form 1065 “Return of Partnership Income”
  • Income to PSS is liable for withholding under section 1146
  • Files form 8804 “Annual Return for Partnership Withholding Tax (Section 1446)” to report total liability under section 1146, with Copy A of PSS's Form 8805 attached
  • Quarterly filing of Form 8813, “Partnership Withholding Tax Payment Voucher (Section 1446)” to pay quarterly installments of withholding for PSS Income
• PSS
  • Files form 1120F “U.S. Income Tax Return of a Foreign Corporation”, attaching form 8805, “Foreign Partner’s Information Statement of Section 1446 Withholding Tax” to claim the withholding credit
  • Subject to Branch Profits Tax
• UPI
  
  • Files form 1120S as normal

So my questions are as follows:

1. Is this the right/recommended process for formation of such a joint venture in TX?
2. Although the income is not actually distributed according to ownership, will PSS and UPI be TAXED according to ownership, or will they be taxed according to the distributions?
3. Do I have the tax filing requirements correct?
4. If PSS merely invoices for services instead of receiving distributions, can LLC avoid the 1446 withholding requirement (of course LLC must still file, but the amount withheld being 0)? If so, must the ownership stake be modified in some way?
5. How does our treaty with India affect taxation of the parties (maybe it reduces the branch profits tax)?

Whew! Thanks for reading all this! I’m sure I’ve gotten some parts wrong, but hopefully I’m not too far off!What is the name of your state (only U.S. law)?What is the name of your state (only U.S. law)?What is the name of your state (only U.S. law)?What is the name of your state (only U.S. law)?What is the name of your state (only U.S. law)?