If you are planning to open a business company in a foreign country, the choice of its ownership form is a very important issue to consider. Companies with different forms of ownership will have different opportunities as far as tax benefits are concerned, first of all. Second, they may be more or less attractive for investors. Third, different company ownership types require more or less effort for their registration. Finally, the banks will make you face more or less trouble when you open a corporate account depending on the ownership form of your company. Thus, when setting up a foreign company, you have to study the local corporate legislation diligently and decide what type of company ownership suits you best. Company ownership forms are generally the same in most countries even though you will find some particular requirements and opportunities depending on the foreign country that you choose to open a company.
LLC, IBC, Corp, and Ltd: the most widespread suffixes indicating the company ownership forms
The form of the company ownership will normally be indicated with a suffix following the company name. In English-speaking countries, the suffixes LLC, IBC, Corp, and Ltd are the most common ones. In the countries where other languages are spoken, the suffixes will usually be different. Let us briefly discuss the defining characteristics of various forms of company ownership.
Limited Liability Companies (LLC)
An LLC is a legal entity detached from its owners that has its own rights and obligations. Both natural persons and/ or corporate entities can start an LLC. The number of company founders is normally not limited but normally it has to be more than one (although in some jurisdictions just one member is enough). The main advantage of an LLC is its limited liability, which means that personal possessions of the company owners are perfectly safe even if things go wrong. Small- and medium-size businesses are usually registered as LLCs. It is important to realize that LLCs are taxed on a ‘pass-through’ basis. This means that the company does not pay taxes but its owners do. All the company profits and losses as well as the tax obligations are passed through to its owners who file their tax returns.
Corporations (Corp. or Inc.)
The name of a corporation or of an incorporated company, can end in Corp. or Inc. respectively. From a legal point of view, both refer to the same type of a limited liability entity and so the terms used interchangeably. A corporation is a company that acquires operational capital by issuing ownership shares. Shareholders’ liability for a company’s debts is limited to the invested capital (nominal value of shares). Directors and employees of a corporation are not personally liable for debts the organisation owes to the creditors either. A corporation pays taxes on its earnings.
In the United States, two types of corporations can be registered: a С-corp or an S-corp. There are no particular requirements to the C-corp owners while only citizens or legal residents of the USA can form an S-corp and the number of its founders shall not exceed 100. In addition, a C-corporation is a standard legal entity subject to taxation while an S-corporation is taxed on the pass-through basis.
This suffix traditionally denotes a company with limited liability. In Great Britain, an LTD following the company name clearly indicates that its owners are liable for the company debts only by the amounts of their respective contributions to the charter capital. At the same time, in the US, the suffix ‘corp.’ is normally used to render this meaning even though in some states, companies are registered with an LTD at the end of the name.
International Business Corporations (IBC)
This is a popular form of company ownership in offshore jurisdictions. Such companies are often used for property management, fund-raising, consultation service provision, etc. IBCs are not taxed on their global income, the requirements to the company founders are quite lax, and the reporting procedures are simple.
In the UK and other countries that use the British corporate legislation, Partnerships are often formed. These can be Limited Partnerships (LP) or Limited Liability Partnerships (LLP). Both types of companies are taxed on the pass-through basis.
A Limited Partnership is a company founded by at least two partners. At least one of the partners shall act as a General Partner, which means that he/ she has unlimited liability. The General Partner is usually the head of the company responsible for the day-to-day management. In addition, a Limited Partnership can have Limited Partners who have limited liabilities. Their participation in the company management is often limited as well but on the other hand, they risk only the amounts of their contributions to the charter capital when joining the Partnership as Limited Partners.
Some time ago, Scottish Partnerships were extremely popular with foreign business people as they allowed optimizing the tax burden and effectively protecting the confidentiality of the business owners.
Limited Liability Partnership
With this form of company ownership, all the Partners have limited liabilities. Thus, the creditors cannot claim any of their personal possessions in case the company goes bankrupt.
LLPs are often formed by a group of professionals such as accountants, lawyers or architects, for example, who want to combine their efforts in order to attract larger clients.
Forms of company ownership in other countries
Let us consider the forms of company ownership available in three more countries popular with foreign investors: Switzerland, the Czech Republic, and Paraguay. Languages other than English are spoken in these countries so the suffixes denoting the type of company ownership will be different. However, the essential characteristics of various company ownership types are very similar to those described above.
Companies in Switzerland
Switzerland is extremely popular for registering foreign companies there due to its highly beneficial corporate legislation and strong property rights protection. The names of Swiss-registered companies sound differently but the forms of ownership are analogous to those in Great Britain and other English-speaking countries.
The following types of companies can be registered in Switzerland:
- Aktiengesellschaft, AG – a stock company. It will be suitable for a large-scale business as the minimum required charter capital amount is CHF 100,000. AGs are tightly regulated by the relevant laws.
- Gesellschaft mit beschränkter Haftung, GmbH – a limited liability company. This form of company ownership is the most popular one in Switzerland as it provides for a good balance between the costs of the company establishment and the prospects that it brings. The minimum required charter capital amount is only CHF 20,000.
- A sole proprietorship can also be established in Switzerland and similarly to other countries, this type of company is easy to establish and serious tax benefits are available to sole proprietors in the country.
- Kollektivgesellschaften — General Partnership
- Kommanditgesellschaften – Limited Partnership.
Companies in Czech Republic
The Czech Republic often serves as a gateway to Europe for numerous business people from countries to the east. The infrastructure there is rather advanced, the local economy is well-developed, and the corporate legislation is friendly to foreign investors.
The following types of entities can be registered in the Czech Republic:
- Družstvo – a cooperative established by at least five natural persons or at least two legal entities. The minimum required charter capital amount is 50,000 СZK.
- Společnost s Ručením Omezeným (S.R.O.) is the most popular form of company ownership in the country. A single person can form an S.R.O. and the required charter capital amount is only 1 СZK.
- Akciová společnost (A.S.) – a form of company ownership similar to a stock company. An A.S. attract capital by issuing shares. The minimum required charter capital amount is 2,000,000 СZK.
- Veřejna obchodní společnost (V.O.S.) – a partnership with unlimited liability. At least two persons are required to establish a V.O.S. who are liable for the company debts by their personal assets. No charter capital is required.
- Komanditní společnost (K.S.) – a form of company ownership similar to V.O.S. the difference being that a K.S. will have both General and Limited Partners. The minimum required charter capital amount is 5,000 СZK.
Companies in Paraguay
A small country in South America, Paraguay has wonderful perspectives for becoming a financial center in the region. The corporate legislation in the country allows registering the following types of companies there:
- Sociedad de responsabilidad limitada (SRL) is the most popular form of company ownership in Paraguay. Two private individuals can set up the company and no charter capital is required.
- Sociedad Anónima (SA) company will be suitable for a large business. At least two founders are required to establish an SA, one of which has to be a citizen of Paraguay. The minimum required charter capital amount is US$ 10,000.
- Agency is a subsidiary of a foreign company in Paraguay. An Agency is not a separate legal entity, as the parent company has to fulfill all the tax obligations.
More practical information about doing business in Paraguay.
Main factors to consider when choosing the form of company ownership
So, if you are thinking of opening a company abroad, you have to acquaint yourself with the local corporate legislation and find out about the following main requirements:
- To the charter capital;
- To the company founders’ nationalities and their number;
- To the registration documents;
- To the reporting procedures: the number of reports and the frequency of their submission.
Shortly speaking, if you are planning to set up a small business in a foreign country, you should consider registering a limited liability company. This type of corporate entity is relatively easy to establish and the charter capital and reporting requirements are quite lax. In addition, certain tax benefits are available to small businesses in most countries. If you would like to raise some funds, you should establish a public company that issues shares.
If you have any questions related to registering a foreign company, please do not hesitate to contact us by email email@example.com, use the online chat, or give us a telephone call. We will be happy to consult you free of charge and our vast experience in the field will make our consultations highly valuable.