Legal structure for Canadian deals with US investors

March 27, 2024

by a searcher from IE Business School in Woodbridge, Vaughan, ON, Canada

Hi searchers,

I'm exploring investment opportunities for a group of U.S. investors in a Canadian company, with most being solely U.S. citizens and one holding dual U.S./Canadian citizenship. I'm seeking a straightforward and tax-efficient investment method. Investors are accustomed to the flexibility and flow-through nature of LLCs, though some opt for S-Corps. I'll require legal assistance for proper setup, but what is your experience in accomplishing this.

I consulted two attorneys, which give somewhat conflicting statements.
I am certain there are people here who must have done something similar to accomplish this? How did you do it?

Thank you,
Ali

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Reply by a searcher
from University of Chicago in Vancouver, BC, Canada

This is not legal advice but just my thoughts. Obviously, you need legal advice. That said, I'm going to post an idea to see if anyone wants to throw rocks on it or otherwise improve it: US LLC (pass through) owns a Canadian Limited Partnership (that is a pass through and the US LLC could be both the limited and general partner) and that Canadian LP owns what equity it acquires in the Canadian acquisition target company. The LLC won't work for the dual US Canadian citizen, and so in that case, one could substitute an S corp for the US LLC. All owners of the S-Corp must be U.S. persons. Not sure how complicated it is to deal with an S Corp. I would guess that if the Canadian Searcher has control after the acquisition, the CCPC rules should be just fine. I suspect it's a lot more complicated for those rules if the Canadian partnership has a controlling interest in the acquired company. It could be that the US LLC or S Corp are not even required, but the Canadian partnership owned by non-Canadians could mean avoiding withholding taxes and even information filings by the partnership. Again, I only know enough to be dangerous. You need a lawyer. But, if others can weigh in, it might be helpful.

Reply by an investor
from Ivey Business School at Western University in Boca Raton, FL, USA

Michael Atlas wrote the book on cross-border accounting for Canadians and consults for a reasonable rate. He is at redacted and feel free to say I suggested you reach out to him. I think this is a more complicated question than it seems and the answer might change depending if you expect your exit to be a stock sale or an asset sale.

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