Before starting your international business venture, it is crucial to determine which corporate business structure suits your specific case. This is vital for tax optimization, beneficial owner’s privacy protection, and corporate savings, as well as for the scale of your business and its geographic reach.
By default, there are 4 types of business structures, each with its own additional branches. However, to make the right decision regarding the legal form of an international company, it is sufficient to study these 4 main types of businesses.
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on which jurisdiction is best for
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on which jurisdiction is best for your business, preferred tax regime, company structure.
What is a business structure, and why is it important for companies?
A business structure refers to the type of organizational and legal form of an entity. When opening a new company, whether it is a private enterprise or an international venture, it is crucial to make the proper determination regarding the type of commercial organization.
While the chosen legal structure of a business may not have a significant impact on the day-to-day operations of the entrepreneur, it holds utmost importance for the following purposes:
- determining property rights
- restricting the personal liability of executives and company shareholders
- ensuring the level of protection for personal and corporate assets
- business tax management
- preparing for organizational expansion and global practices.
In addition to the form of business, attention should also be paid to the country of incorporation for an international company, as it holds significant importance in terms of tax planning and capital protection. Currently, offshore companies established in such jurisdictions remain a priority:
- United States (several states)
- United Kingdom
- Cook Islands
- United Arab Emirates, and so on.
However, even when favorable conditions for international business exist in one jurisdiction, equivalent conditions for banking accounts in the same country are not always guaranteed. In such cases, it is advisable to diversify capital by obtaining pre-approval from a bank or payment system ready to open an account for an international company founded by an individual from a specific country.
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4 types of business structures
When choosing a structure for organizing entrepreneurial activities, you can begin with the most straightforward and accessible business type and subsequently upgrade the company through expansion and making changes to the documentation, including the organizational and legal form. However, it should be noted that this approach entails additional financial expenses and requires resolving administrative issues.
Typically, most founders establish the type of business structure during the stage of registering a company abroad. The key factors influencing the choice are:
- scope of activities and geographic location of clients/partners
- size of the workforce and business scale
- number of founders
- initial capital investment
- objectives and goals.
Is there a difference between offshore company forms and types? Yes, and you can learn more about it in our expert review.
To properly determine which company would be the best and most advantageous to establish abroad in a specific case, seek a personal consultation with our experts.
The simplest and most accessible business structure is a sole proprietorship. Taxation for sole proprietorships may vary in different countries. However, the general advantages and disadvantages of this business structure are similar.
Advantages of a sole proprietorship:
- Easy registration process by submitting an application through a single window.
- Minimal expenses and no requirements for registered capital, shareholders, or a physical office.
- Absence of profit division at the corporate and personal levels. By default, all business revenue belongs to the sole proprietor.
- Seamless organization from a tax perspective, resulting in no corporate taxes and taxation only on the sole proprietor’s income.
- Flexibility for the sole proprietorship to easily change its business structure in case of expansion.
Disadvantages of a sole proprietorship as a business structure:
- Personal liability of the sole proprietor for all debts and obligations, including taxes.
Note: For digital nomads and freelancers, a sole proprietorship is often the most suitable business type due to low taxes and the absence of obligations towards partners, shareholders, or investors.
A partnership is a legal business form where there can be one partner of any residency or multiple partners (individuals and legal entities). Depending on the type of partnership (general or limited), this business structure can have a global scale and remain the most advantageous according to all criteria.
Types of partnerships:
- General Partnership (GP), where two or more individuals or entities act as partners. In a general partnership, the business is divided equally among the managing partners or according to the percentages specified in the partnership agreement.
- Limited Partnership (LP) involves the presence of at least one general partner. The remaining partners do not bear full responsibility for the debts and issues of the business but fall into the category of limited liability and management partners.
- Limited Liability Partnership (LLP) is a partnership where all partners are not personally liable for the debts and mistakes of each other.
Limited Partnerships are recognized as pass-through entities similar to sole proprietorships, where each partner bears personal responsibility for tax payment. This attracts foreign entrepreneurs who often register such structures in Canada, Ireland, Seychelles, the Isle of Man, the United Kingdom, and other jurisdictions.
Advantages of partnership business structure:
- ease of registering
- separated liability
- protection of personal liability (financial and legal)
- potential for reducing taxes on foreign business.
Drawbacks of registering a partnership:
- potential conflicts among partners.
- personal risks due to the absence of separation between the business and the individual (partner), and tax liability.
Where is the most advantageous location to establish a partnership for international business and tax optimization? Contact our specialists and receive a comprehensive range of services on this subject!
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A corporation is a legal and organizational form in which a company or a group of individuals or legal entities act as a single legal entity. Corporations are among the types of legal entities with no personal liability, although the structure itself possesses many rights that individuals have. For example, it can act as a plaintiff in courts or be held accountable, as well as enter into contracts with other entities, organizations, and government authorities.
Depending on the country of registration, different abbreviations and names are used to classify this company type. For instance, the United States Internal Revenue Service (IRS) has defined two classifications for corporations:
- C Corporation (C Corp) is not a pass-through entity, and taxes are paid by the company itself and its shareholders at the personal income level. Such business structures involve double taxation and are often created on a global scale.
- S Corporation (S Corp) differs from a C corporation as it allows for pass-through taxation, tax advantages, and flexible settings.
Entities registered as International Business Companies (IBCs) are often considered as corporations. This option is optimal for tax optimization if you establish your business in one of the offshore jurisdictions such as:
- Anguilla, and several other countries.
Advantages of corporations:
- protection of shareholders’ and founders’ liability in the business
- wide range of opportunities for contract agreements and business transactions as a legal entity
- global scale and the ability to engage in diverse activities, including licensed and high-risk
- corporations provide perpetual existence, where the arrival or departure of shareholders and changes in management are of no significance.
Disadvantages of corporations:
- high costs associated with establishing a joint-stock company, including specific requirements for capital and shares
- compliance with administrative and legal norms according to the country of incorporation, including tax residency, reporting, substance, and other criteria.
Explore the current offerings for registering an international business corporation (IBC) and take advantage of the services provided by professionals who specialize in this field!
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Limited liability company (LLC)
A limited liability company is the fourth business structure on our list and is highly popular among foreign investors. There are local and international companies operating as LLCs, which affect tax obligations and benefits.
Additionally, the tax authorities may consider an LLC as a partnership, association, corporate structure, or traditional limited liability company, depending on how the company is structured and the regulations set forth by the country of registration.
An LLC is a hybrid business structure combining elements of a partnership, joint venture, and other different business types. It is a versatile option that is particularly favored in offshore jurisdictions due to its flexible configuration and advantageous conditions for establishment, taxation, and company structuring tailored to specific goals and objectives.
Advantages of foreign and offshore LLCs:
- minimal requirements for business registration, allowing foreign individuals or companies to be the sole founders and owners
- in certain offshore jurisdictions, it is possible to establish an LLC without minimum capital requirements
- access to double tax avoidance agreements
- no taxes in the jurisdiction of LLC registration, provided specific requirements are met
- LLC protects personal assets and limits the liability of owners to the extent of their capital contributions
- option to choose the tax regime, either pass-through or corporate taxation
- tax savings opportunities.
Disadvantages of an LLC:
- Not available for all types of businesses, particularly those in licensed industries such as banking, insurance, and trading.
- Potential tax complexities. For example, in the United States, multiple personal and corporate tax returns may need to be filed. In addition, depending on ownership percentage, the business may be deemed a controlled foreign corporation (CFC), requiring tax reporting based on the tax residence of the beneficial owner.
Pros and cons of each business structure in the context of taxation
To determine which structure is best for tax optimization purposes, it is worth examining each type of company’s concise advantages and disadvantages.
|Type of business structure||Advantages||Disadvantages|
|Sole proprietorship||The sole proprietor pays taxes directly, while there are no taxes at the corporate level.|
A simple and cost-effective business structure.
Minimal reporting requirements.
|Unlimited personal liability.|
Challenging to obtain business financing.
No perpetual existence.
|Partnership||Pass-through organization where partners personally pay taxes.|
No corporate taxes are levied on the business.
Simple and cost-effective business structure.
|There may be unlimited personal liability.|
The presence of a partnership agreement is mandatory.
|LLC||Limited liability for taxes and business management.|
Flexible structure that can be configured as a partnership, corporation, or LLC.
No taxes on corporate business.
Flexibility in choosing the tax structure.
|Not recognized outside the United States.|
Not recognized at the federal level in the United States.
|C Corp||Limited liability.|
An unlimited number of shareholders.
Preferred for IPOs and external investors.
|Taxes are paid at personal and corporate levels.|
Increased regulation and supervision.
|S Corp||Limited liability.|
No corporate business taxes.
|The number of shareholders may be limited.|
Not recognized by all states.
How to choose the proper business structure for your business? To avoid mistakes and make the right decision, it is necessary to seek advice from professional experts.
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