Are you an established investor looking to expand your business, or a beginner eager to get started in the world of trading? In both cases, opening an LLC can be one of the best solutions for your business structure.
That's because an LLC in the United States can give you numerous advantages for your trading company, such as access to a wide range of brokers and investment types (ETFs, options, futures...), limited liability, anonymity, and much more.
In this article, we'll dive deeper into those advantages an LLC can offer you, and we'll guide you on how to open this type of company so you can start enjoying its features. Let's get started!
What is an LLC?
A limited liability company (LLC) is a very popular U.S. business structure, whose main features are:
- Limited liability: the owners are not personally liable for the company's debts, which protects their personal assets from being used to cover the LLC's debts.
- Tax transparency: the LLC's profits and losses "pass through" directly to the owners, who report this income on their personal tax returns.
Other features that make LLCs very popular are their low formation and maintenance costs, unregulated profit distribution, the privacy they provide, and flexible, simple management. Let's look at how all of this applies to trading and investing.
Advantages of an LLC for trading and investing
Buying and selling financial assets in the short term to profit from price differences, or acquiring assets and waiting for them to appreciate over time, can be more effective by creating an LLC.
Access U.S. brokers
With an LLC for trading and investing, you'll be able to access the best brokers in the world, which, naturally, are in the United States.
Although you can trade in the financial markets through these intermediaries without an LLC, in some specific cases clients must be U.S. citizens or companies.
While there are dozens of brokers you can use to trade and invest in the United States (and the rest of the world), when choosing one you should verify that it is backed by the nation's main regulatory bodies:
- Commodities Futures Trading Commission (CFTC).
- Securities and Exchange Commission (SEC).
- Financial Conduct Authority (FCA).
Get a U.S. bank account to make deposits easier
To buy, sell and hold financial assets and collect income and dividends, you first need to make an initial cash deposit and link a bank account.
And for that, obviously, you'll need to have one open at a U.S. bank. As with many brokers, banks make it easier for local users, whether individuals or institutions, to open accounts, and an LLC gives you that status.
As the owner of a limited liability company, you'll be able to navigate the U.S. banking and financial system without any complications, enjoying fast and efficient money-related processes.
Some LLCs are anonymous
To trade or invest, you necessarily have to verify your identity with some type of document, which can compromise your privacy.
However, an LLC can be completely anonymous, since it can avoid disclosing the names of its members in the state database.
Although not every state allows you to register an anonymous limited liability company, Delaware, Nevada, New Mexico and Wyoming do.
In principle, to enjoy this benefit, you just need to avoid providing your name in the registration process. That's it, you can trade on the stock market anonymously.
The USA does not share information about company bank accounts through the CRS
In addition, LLCs benefit from an international agreement called the Common Reporting Standard (CRS), which allows countries to receive annual information about their citizens' bank accounts abroad.
This information ranges from balances and interest to dividends and gains from the sale of securities. The United States is part of the treaty, but it does not share information except in judicial situations.
In any case, business accounts, such as those created through an LLC, are not affected, since they are protected by U.S. bank secrecy, ensuring the data stays within the country.
An LLC protects your personal liability
As its name indicates, the "limited liability" of an LLC serves to restrict the liability of its members, since the company is established as an autonomous legal entity.
Essentially, this means that the personal resources of the company's members are protected and cannot be used to pay off the debts and commitments the LLC may take on.
In other words, it is a very important safeguard, since a member's potential loss is limited solely to the capital they contributed to the business.
The separation of assets and liabilities between the business entity and its owners is fundamental in terms of financial security because it ensures that the company's financial obligations cannot erode the members' personal wealth, ideal for trading and investing where leverage is involved.
LLCs and trading-related taxation
When setting up an LLC for trading and investing in the United States, it's very important to keep in mind some tax issues related to these two activities.
LLCs are pass-through entities
First, you need to understand that limited liability companies are pass-through entities, also called "pass thorugh" or "tax-transparent" organizations.
What does this mean? It means that the LLC's taxes are passed on to its members as legal persons, without having to pay corporate taxes.
Does your LLC qualify as ETBUS?
The term ETBUS means "engaged in trade or business in the United States" and refers to a company that must pay taxes to the U.S. tax authorities for:
- Providing services within the country.
- Having a permanent establishment within the country.
- Receiving fixed, determinable, annual or periodical income (FDAP).
If you open an LLC for trading and investing, the company will have no physical presence, employees or local partners, so it would not count as ETBUS under the first two requirements.
However, there may be a possibility that you pay taxes on income from your investments. But you can avoid it, as we'll explain below.
Watch out for dividend taxes
The taxation of your LLC for trading and investing depends on different types of gains: capital gains, interest and dividends. The first two do not generate taxes, while dividends are subject to a 30% Income Tax withholding.
If you are the owner and reside in a country with a tax treaty with the United States, you can reduce that withholding. However, this classifies your company as ETBUS and requires an individual tax return with the IRS because dividends are FDAP income.
However, you can legally avoid these taxes if you sell shares before receiving dividends, paying attention to the announcements at the shareholder meetings of the companies you invested in.
How to open your LLC and start trading?
To open your LLC and start trading and investing, you just need to follow a simple seven-step process:
Step 1: file the formation documents
Start the process by filing the documents needed to legally establish your LLC in your state, meeting all legal requirements. Make sure to pay the corresponding filing fee.
Step 2: get your EIN
Get your Employer Identification Number (EIN) from the IRS. In general, you can get it online in a few clicks.
Step 3: create an operating agreement
Draft an operating agreement that defines the LLC's operations and roles. Include clauses that allow the purchase and sale of shares and other financial assets. This agreement is essential to establish the legal and operational foundations.
Step 4: appoint an authorized person
If your LLC has more than one owner, select the person authorized to carry out asset purchases. Define a clear procedure for carrying out these transactions.
Step 5: research your investments
Do thorough research on the potential investments you want to make. Search online and evaluate the available options to make sure they align with your LLC's investment strategy.
Step 6: open a brokerage account
Choose a reliable broker and open a business account in your LLC's name. Remember to meet all requirements and provide the necessary documentation.
Step 7: fund your account
Finally, once the account is open, make the necessary deposits to fund it and you'll be ready to trade.
As you can see, for trading and investing, opening an LLC in the United States is a very good option because of the many advantages it offers.
In just seven steps, you'll be buying and selling financial assets to grow financially over time.
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Written by
Ignacio Navarro
Ignacio Navarro is a Certified Public Accountant, founder of Start Companies and a specialist in U.S. companies for entrepreneurs, freelancers and digital businesses in Latin America. With training in international taxation and studies at UCEMA, he advises non-resident clients on forming and maintaining LLCs, opening bank accounts, invoicing, accounting and taxes. His experience combines tax strategy, compliance and practical vision for operating in the U.S. in a simple, organized and professional way.
