6 February 1997 External T.I. 9610765 - LLC'S STATUS AS A CORPORATION

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Where a particular U.S. state or foreign country requires out-of-state or foreign LLCs to register under its LLC legislation in order to carry on business in that state or country, does the fact that the foreign LLC is referred to as a "unincorporated" association or organization call into question it status as a corporation?

Position:

No

Reasons:

The LLC's status as a corporation would depend on whether it had a separate legal personality under the statute is was formed or continued under not on how it was described or referred to simply for registration purposes in another state or country.

	                             	961076
XXXXXXXXXX	                        David R. Senécal

Attention: XXXXXXXXXX

February 5, 1997

Dear Sirs:

Re: U.S. Limited Liability Companies

This is in reply to your letter of March 21, 1996, wherein you request our views as to the impact that a particular provision, which you indicate may be found in the LLC statutes of some states of the U.S., would have on tax status of certain LLCs registered in those states. We apologize for the delay in responding to your enquiry.

You state that the LLC statue of a particular state ("State A") may include a provision whereby an LLC formed under the laws of another state ("State B"), termed a "foreign LLC", must register under the LLC legislation of State A if the LLC formed in State B is proposing to carry on business in State A. You give the example of the LLC legislation of the state of Indiana which describes a foreign LLC as an "unincorporated association" or "unincorporated organization". Apparently, the technical reason for so defining the foreign LLC formed under the laws of State B is to make it clear for the purposes of the domestic laws of Indiana (i.e., State A) that the relevant registration statute in Indiana is its LLC legislation and not its corporate statute. If the foreign LLC were treated as an "incorporated organization" or "incorporated association", it would be required to register under the foreign corporation provisions of State A's corporate statute.

In our view, the existence of the above-described provision in a particular state's LLC statutes, in and of itself, would not disqualify a LLC which is registered under that statute from being considered as a corporation for purposes of the Income Tax Act (the "Act") if the particular LLC, in fact, has a separate legal personality by virtue of LLC statute under which is was formed or organized.

You have also indicated that it would be helpful if the Department published guidelines concerning the factors that it considers as being indicative of a LLC having the status of a corporation for purposes of the Act. In our view, the Department's views are adequately expressed in IT-343R "Meaning of the term corporation", in particular, in paragraph 2 thereof dealing with the requirement that the entity created have a legal personality and existence separate and distinct from the personality and existence of those who caused its creation or those who own it. The factors to be considered in establishing whether or not an entity has a separate legal personality are well established as evidenced by the fact that you have set out many of them in your letter.

Furthermore, it is our position that the determination of whether a particular entity, including a LLC, has a separate legal personality is always a question of fact. In this regard, it may be that a particular entity formed or organized in a certain U.S. state or another foreign country may not be considered by the Department as being a corporation for purposes of the Act even though the Department has expressed the general view that entities formed or organized under the laws of that particular U.S. state or foreign country would normally be considered as being corporations.

We trust that our comments will be of assistance.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch