Is it possible to open a foreign company and forget about it? Sure, you can set up your LLC and do nothing with it. However, it is important to note that an LLC entails certain duties and expenses even if it does not engage in any noticeable activities!
For example, you will often have to pay an annual duty for LLC registration, submit an annual report (in some countries), and keep precise accounts of the LLC’s finances and activity. Besides, if you fail to comply with these requirements or duly maintain your LLC, you may face a serious fine.
In addition, if you abandon your company and stop using your LLC for entrepreneurial activities, it will not provide any considerable advantages. The main benefit of an LLC establishment is the protection of limited liability it provides to its owners. It means that the owner’s personal assets are usually protected from any legal or financial obligations incurred by the LLC. On the other hand, if your LLC does not engage in any commercial activities, the risk that the legal or financial obligations will appear may be practically reduced to zero, except for duties and other expenses on company maintenance.
Why Is LLC Opened?
An LLC (Limited Liability Company) is a type of legal entity. One of the main advantages of LLC establishment is the protection of limited liability it provides to its owners. It means that the owner’s personal assets, such as their house or car, are usually protected from any LLC’s legal or financial obligations. For example, if an LLC is sued or debts fall due, the owner’s personal assets will not be at risk.
One more advantage of LLC establishment is the fact that it ensures certain flexibility with regard to company management and taxation. Unlike a corporation or a business company (BC) that has a more rigid governance structure, an LLC can be managed by owners or a separate manager. In addition, an LLC can choose a different taxation format, including a partnership, which will allow transferring the company’s profits and losses to the owner’s personal tax return.
In many countries, you can register an LLC on a remote basis. In some offshore jurisdictions, such as Nevis, the company’s profits derived outside the country are not taxable, and there is no need to submit annual tax reports. However, it should be kept and stored on a mandatory basis.
Why Not Just Abandon an LLC and Do Nothing With It?
Your LLC can theoretically be on standby mode (without any commercial activity conducted).
However, keep in mind that there are certain responsibilities and obligations connected with LLC maintenance even if the company does not engage in commercial activities very intensely.
Secondly, there are legal requirements that should be met to correctly form and maintain your LLC. They usually include an annual duty and correctly prepared documents at LLC registration, as well as the choice of a name. Besides, you need to provide information about the owners, beneficiaries, and managers.
After you have created your LLC, there are permanent requirements you have to comply with to maintain the company’s legal status. For example, the majority of countries require the LLC to submit an annual report that contains updated information on the company’s management, ownership, and business activity structure. Some countries levy an annual duty for company renewal (these include, for instance, some US states, Seychelles, Nevis, etc.).
The countries like Germany and Switzerland have no annual duty, but the expenses on company organization and maintenance are much higher. You need to submit accounting reports and rent an office.
If your company has opened a bank account, you will often need to pay a service fee. Banks often charge an additional fee if the account is inactive and remains in this status for 3-6 months. Payment shall be made using the funds that remain in the account. If the balance equals zero, the bank shall have the right to close your account.
How to Use an LLC at a Profit If You Do Not Conduct Business Activity
If you have opened an LLC for some reason and do not use it for your commercial activities, we can propose several options for its beneficial use. If you just abandon it, you will incur expenses without getting any dividends.
How to use your inactive LLC:
- Savings wallet: if your company is in the offshore area, you can gradually transfer some amounts to its bank account (such transfers should be grounded, of course). You will have a kind of money box thanks to a lower taxation rate.
- Real estate purchase and management: an LLC can become a management company for your international real estate. If you have several properties in different countries, you can transfer them to the LLC to simplify servicing, management, and even transmission by inheritance. You can read details about it here.
- Storage of other assets, for instance, securities.
- Quick start of business: if you ever decide to launch your business, you will have a ready-to-use company.
- Sell the company to the one who needs it.
Don’t Abandon a Useful Instrument
Remember that a foreign LLC is a practical instrument that you can benefit from if you use it. However, an abandoned LLC will require resources for maintenance. It’s like a car that needs to be in motion all the time to keep its engine or battery working: your LLC should be operational to bring profit in this or that way (these are not always direct earnings in the monetary form).
If you have an inactive company, make sure that you have paid the duties and submitted all reports, or you may face problems with the laws. Use professional services to prevent this from happening! Our team proposes not only registration of companies and opening of bank accounts but also keeping your financial accounts and other business services. You can find out more by writing to us at firstname.lastname@example.org.