Considerations for Launching a U.S.-Based Search Fund as a Canadian Citizen
August 23, 2024
by a searcher from Concordia University - John Molson School of Business in Toronto, ON, Canada
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
from Western University in Vancouver, BC, Canada
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.
from Harvard University in Fredericton, NB, Canada
You are not looking to obtain a SBA Loan. That's a whole other discussion.
Soliciting investors is a highly regulated industry in BOTH countries. The USA has been particularly vigilate in cracking down on violators.
If you are looking to solicite private investors I can refer you to a Canadian securities registered company who is also registered with the SEC state side to create a fund that would be compliant. It's not something you can do yourself unless you are licensed and registered as a securities dealer.
I do not know the miniums for these types of funds, I expect it would be best suited for large scale projects.
The one I'm currently working with is a $100 million+ luxury resort/spa/condo project.