When choosing a particular type of legal entity to set up offshore, every business owner should understand the specifics of local legal structures: how they compare to similar business types in their home countries and elsewhere in the world, and how different they are from other forms of business. Limited Liability Company (LLC) is recognized globally as the most beneficial entity type for small and medium-sized businesses.
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What is a Limited Liability Company (LLC)?
LLC stands for Limited Liability Company. It is a legal entity type originally designed in the USA and later popularized offshore. The offshore LLC is chosen by owners of small and medium-sized private companies for key advantages that are beneficial to business development and ownership.
- The LLC combines a mix of features of partnerships, corporations, and the sole proprietorship.
- It is an independent legal entity with its corporate structure, that can have its own accounts, property, staff, business operations, and liabilities.
- Like a sole proprietorship, it can be founded by only one founding member.
- Like a partnership, it can be founded by several partners (both individual persons and legal entities). LLC founders/owners are called members (not shareholders).
- LLC can be founded by another legal entity (however, such cases should be given specific consideration, because there are some important reservations requiring caution and foresight!). Non-residents can be LLC founders.
- Just like a corporation, an LLC is liable for its own possible debts. Thus, the personal bank accounts, private property, and other assets of the owner(s) are protected even in case of the company’s bankruptcy, and cannot be used as collateral to repay the company’s debts.
Limited Liability Company (LLC) refers to a specific type or category of ‘Limited Company’ (LC). Other LC varieties are Ltd., PLC.( Public LImited Company), AG, and other types that limit the members’ liabilities (as a maximum – to the amount of the capital originally invested by this member).
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The specific feature of LLC is that its members are not personally liable for the company’s liabilities at all.
In different countries, Limited Liability Companies have their local versions and distinctions. The most common LLC features are:
- Limited liability company structure does not include the Board of Directors and shareholders. The owners are called ‘members’ and they are usually the company’s founders/founding members. They can be with or without voting powers.
- The members’ ownership rights are stated in the main founding document – the Articles of Incorporation (also called Corporate Charter, or Statute), and the internal By-laws (Operating Agreement).
- The profit (membership interest) of each member is a certain percentage of the total income of the firm, according to his/her original contribution (share) in the LLC capital. But these are not shares of stock.
- Each member is required to declare profits received from the LLC according to his/her share in the capital.
- It is not unusual to register a single-member LLC to use it later as a holding company or a founding member of a new partnership or another structure.
- A creditor cannot file a legal claim demanding a member to reimburse the company’s debt at the expense of the member’s private assets.
When owners do not quite understand the nature and specifics of LLC as a legal entity type, the following mistakes are quite likely:
- Some entrepreneurs say they need to create a Limited Liability Corporation. Please note that such a legal entity type does not exist. Corporations are different types of business structures, even though they have some similar features.
- It is a mistake to say ‘I would like to register as a sole LLC’. You can legally register either an LLC (even if it is a single-member LLC) or a sole proprietorship. These are the two different types of entities.
Advantages of Limited Liability Company (LLC)
Limited liability of members is the main advantage of LLC. Other advantages are as follows.
- Less bureaucracy and red tape.
- Name reservation: No other business in the jurisdiction of incorporation can use your LLC company’s name.
- The ease of filing a tax return. Single-member LLCs are often taxed as sole proprietors and profits are taxed only once. Single-member LLCs can also choose to be taxed as corporations.
Where can you register an LLC?
LLCs emerged in the 1970es in Delaware and Wyoming, the USA, and were legally adopted by 50 US states by the mid-1990-es. This is why internationally such structures are called Limited Liability Companies in the English language, and search engines feed you mostly English-speaking resources. Sometimes single member companies or private limited companies are incorrectly translated to English as LLCs.
In the USA, this entity type is popular in Texas, Alabama, Nevada, Utah, and Delaware.
Our portal is focused mainly on opportunities available to companies and individuals in offshore countries, so let us mention some type of offshore LLCs from around the globe that could be recommended in the first place as destinations for LLC registration:
- Nevis LLCs
- Cook Islands LLCs
- St. Vincent and the Grenadines LLCs
- Marshall Islands LLCs
Please note below some of our recent articles about LLC registration in particular countries, you can look up for more information on our portal:
- An offshore company in Nevis: should you register an IBC or an LLC?
- Can you perform several business tasks via one LLC registered in the USA?
- Register an offshore LLC in Saint Vincent and the Grenadines
For each type of business to be registered offshore, you need to select the most suitable jurisdiction and negotiate with the best offshore banking institutions about opportunities for opening checking or current accounts with them. Banking choices need to be made with consideration of the specifics of the business area, licensing requirements and needs, risks, and other factors.
Here, once again, may we offer a FREE private consultation with our expert lawyers on how to select a foreign bank and accounts for your offshore company. Or, you can request our experts’ advice by writing to the e-mail address or messengers given at the very top of this page.
What is an LLC, what are other analogous legal forms in the world?
LLC is a legal entity type. The abbreviation stands for Limited Liability Company. The closest analog is LC which is a broader term, under which umbrella there are also other business structures: PLC, AG, Ltd, etc. LLC has some characteristics of a partnership, a sole proprietorship, and a corporation. One of its specific features is the pass-through taxation (similar to that of a partnership). LLC guarantees to the members limited (or no) liability for the company’s debts, as does a corporation. Like a sole proprietorship, an LLC can be founded by only one member.
What are the advantages of an LLC in terms of company formation in an offshore jurisdiction?
The main advantage of an LLC as an entity type is the founders’ limited liability and maximum protection of the personal assets. However, there are other advantages as well: the ease of filing tax returns; single-member LLCs are often taxed as sole proprietors; the members’ profits are taxed only once (single-participant LLCs can also choose to be taxed as corporations); much less paperwork and bureaucratic red tape faced when incorporating the company; and offshore LLC name reservation: no other business in the jurisdiction of incorporation can use your LLC company name.
Where can one open an LLC?
Limited liability companies are popular in many countries. First of all, this entity type is used in Texas, Alabama, Nevada, Utah, and low-tax Delaware, as well as in most other states of the U.S.A. The offshore jurisdictions recommended for registration of your LLC are Nevis, St. Vincent and the Grenadines, the Marshall Islands, and the Cook Islands.
