Can I add international investors
It’s a common question that we get from fund managers.
If the foreign investor has a US EIN, they can join your fund using the LLC entity with US EIN number.
If the investor does not have a US SSID/EIN, adding international investors to a fund adds complexity on multiple fronts so we generally have advised fund managers not to do it when they are just starting their funds.
Key considerations.
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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.
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Tax withholding – if you bring an foreign investor directly into the fund, the IRS requires you to withhold taxes for that investor. This adds both accounting and tax complexities.
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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.
