International Investors - can I add them to my fund?
its a common question that we get from fund managers.
Here are the scenarios:
Scenario 1
The foreign investor has a US LLC setup with a US EIN.
They can join your fund using the LLC entity with US EIN number.
Scenario 2
The foreign investor does not have a US LLC. This is a one off investor and you do not plan to have many investors. We're excited to have partnered with Doola to help international investors invest in the US. Non-US persons (anyone that does not have a taxpayer ID in the US) are required to have a LLC and a US EIN.
The following items will be required:
1) US LLC (recommend Delaware)
2) US bank account for the LLC
3) C-corp election form
4) EIN application (accelerated)
5) ITIN number (for each member of the LLC) – this can be done later when the investor actually taxes but does take a few months
Investors will be required to fil annual federal & tax filings as well.
Doola provides all these services and the following link can be sent to investors to sign up:
https://partnersps.doola.com/w7oasezrzpyy
Scenario 3
Onboarding international investors is a key part of your strategy and you do not want them to go through the hassles of setting up US LLCs. In that scenario, you can consider an offshore feeder fund.
Key considerations:
- Legal – our attorneys generally recommend an offshore feeder fund to bring on international investors vs. directly into the fund. There are pros/cons of using offshore feeder fund as well as costs to set up the feeder fund. Avestor's legal documents do permit fund managers to create offshore feeder funds but you will need to engage with an attorney that specializes in offshore feeder funds to assist with that fund creation.
- Tax withholding – IRS requires tax withholding for all non-US persons. Partner with your tax firm to understand how you will handle this.
- Tax filing requirements - the IRS implemented a requirement in 2022 that LLCs must provide its members with K2 and K3 forms in addition to K1 forms if a single international investor joins the LLC or the LLC does any foreign investments. K2/K3’s will add costs of the tax return for the fund.
While adding international investors to your fund can be attractive, fund managers need to understand and be ready to accept the additional complexities and costs that will come with adding those investors.
Reach out to Avestor to discuss this matter in more detail.
