Considerations for Launching a U.S.-Based Search Fund as a Canadian Citizen

by a searcher from Concordia University - John Molson School of Business

7 months ago

Are there any tax or legal nuances or implications as a Canadian citizen launching a traditional search fund in the USA?
U.S. investors
U.S. focused search
Initially planning on staying in Canada during the search phase, but open to relocating if it simplifies the process
Plan to acquire in the states and  move once the acquisition is complete

Any advice or guidance would be greatly appreciated

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19 comments

investor from Colby College

Depending on your background, you could relocate on the O1 visa. EB1a and EB2 NIW could be solid long term options too. No investment required as for E2/EB5 so works well during the search phase. Will probably allow your LPs to sleep better at night that upon acquisition you won't have any visa issues.

5 months ago | like reply | 0 likes

searcher from Western University

If you are using a search entity that is raising search capital, set up a US LLC and not a Canadian LP, especially if you have US investors (as they will likely not be familiar with an LP structure).

Since you are searching out of Canada, you should register your LLC with the CRA and get a business number. You can file your annual tax return that way (which should be pretty simple since you’ll only incur some expenses). If you’re paying yourself from that entity, also register for a payroll account to do all the CP and EI remittances.
If you’re just a solo searcher and not raising any search capital, I don’t think you really need to do anything until you have a deal in hand, so you can kick the can down the road.

When it comes time to acquire (per my high level understanding), if it’s a US acquisition use the LLC as your acquisition vehicle. If you end up acquiring in Canada (and you created an LLC as your search entity), your lawyers can work some magic and amalgamate the US LLC with a Canadian LP which you’ll then use to acquire. Otherwise if you didn't create a search entity, just create an LP in Canada for the acquisition. For any US acquisition, try and avoid having an LP own the US business (especially if it’s an LLC) as this creates all sort of tax headaches, since AFAIK the CRA does not recognise an LLC structure.

As others have suggested, get a good lawyer and accountant to help you out here as the devil is in the details here.

6 months ago | like reply | 0 likes

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