Limited liability companies
A limited liability company (hereafter referred to as an LLC) is a commercial company type with legal personality status. Typically, an LLC’s equity capital consists of the total par value of its equity shares. One of the major features and benefits of any LLC is the fact that shareholders can’t be held personally responsible for the company’s debts or liabilities — only the assets of the business itself are at risk. However, the matter of limited liability also depends on the national legislation of the jurisdiction in question. Generally speaking, an LLC is a business structure that blends the simplified taxation of a partnership with the limited liability principle of a corporation. It can be the perfect solution for an international trading company, provided that the jurisdiction is well chosen.
A major difference between a joint-stock company and an LLC is that the latter is always a close company and its shares are not publicly traded. Internationally, another commonly used name for an LLC is a private liability company or simply “Ltd”. This term is widely used in the United Kingdom and some other common-law countries.
Choosing the correct legal structure for your company can be crucial for the purposes of tax planning, profit-sharing and cost reduction. There are some key differences between them, and each has its own benefits and disadvantages depending on the case. Therefore, effective corporate planning prior to incorporation is essential. Contact Confidus Solutions now for a unique solution to help you achieve your personal goals!
Functions of a limited liability company
There are no particular circumstances under which you would be obliged to incorporate a limited liability company. An LLC is a type of legal entity that successfully mixes the majority of the most desirable attributes of other company types, which explains why most entrepreneurs opt for an LLC when starting a business. Furthermore, in many offshore jurisdictions there are simplified accounting and record-keeping requirements for LLCs.
Usually, we would advise our clients to consider an LLC as a viable option when they are looking to start up a trading company or a small business within certain limits. LLCs are perfectly suited to those seeking an opportunity to run a business (locally or internationally) and distribute profits at minimum expense. However, you should always bear in mind that an LLC usually does not offer an effective mechanism for introducing a partner with limited voting capacity, or numerous investors, to your business. In these cases, we suggest you consider a limited partnership or a joint-stock company, as these may offer more effective ways to achieve your goals. Incorporating an offshore company in a tax haven jurisdiction may be a good way to reduce maintenance costs.
Advantages and disadvantages of a limited liability company
As with any other legal entity, the LLC has its own pros and cons. Depending on the circumstances and your chosen jurisdiction, there may be other peculiarities in addition to those listed below. That is why we suggest that you consult our lawyers prior to initiating the incorporation process.
The main advantages of an LLC are:
- Limited liability of the shareholders with respect to creditors
- Smaller minimum capital than for a joint-stock company
- Flexible structure: it can operate with one or multiple shareholders
- Minimal requirements for board and directors; no supervisory body
- Flexibility with regard to taxation
- Relatively quick and easy incorporation procedure
- Simple bookkeeping and paperwork
- Usually one person can be shareholder, director and employee (if required)
The primary disadvantages are:
- Limited third-party investment options
- The company cannot issue shares publicly
Shareholders of a limited liability company
The capital shares of a company are owned by its shareholders. This means that every shareholder has a voice in the decision-making process in accordance with the number of shares owned, which in turn depends on how much they contributed to the company’s capital. The number of shares held by a single shareholder is usually indicated by a percentage; for example, in an LLC with four shareholders who have invested equally in the business, each owner would normally have 25% of shares and these four shareholders would each receive a corresponding share of the profits. The shareholders’ liability is limited to the amount of capital they have invested.
Usually, there is no limit on the total number of shareholders a limited liability company can have, and so an LLC`s shareholder(s) can be an individual person, a group of two or more people or even one of a number of legal entities, for example, corporations or other companies. As a result, LLCs are widely recognised as one of the most flexible company types, and they may be used as part of a larger corporate structure. However, some jurisdictions may impose restrictions or additional requirements regarding shareholders and their legal status. For example, in some countries an LLC must have at least one shareholder who is a national of that country, whereas in others a legal entity cannot be a shareholder. Call us now for more information regarding the legal regulations in your jurisdiction.
Incorporating a limited liability company
While the documents required for incorporating an LLC will vary from country to country, some are universal and will always be needed. These include:
- The memorandum of association, also called 'the memorandum'. A statement of the shareholders’ decision to establish a company, this document sets out the fundamental conditions upon which the company is allowed to operate. The memorandum must provide details of the founders, the name of the company, its equity capital and the admissible amount of incorporation expenses and how they are to be paid, as well as other relevant provisions.
- The company’s articles of association – a corporate document that broadly defines the responsibilities of the board, the kind of business to be undertaken and the means by which the shareholders will exert control over the board of directors.
- A document proving that the minimum required share capital has been paid.
To incorporate an LLC, other documents may be required as well, such as an application form, a legal address application, documents attesting to the value of each property contribution, written acceptance of each shareholder and/or director, a receipt for the payment of the state fee, etc. These documents will vary depending on the chosen jurisdiction.
An application with the necessary documents attached must be submitted to the local company register. The application may be submitted by the founders (shareholders) or anyone else authorised by power of attorney to act in their name.
Top five offshore jurisdictions for incorporating an LLC
The essential purpose of any offshore company is to make use of the possibilities offered by other countries’ legislation. When incorporating an offshore company, it is vital to choose the right jurisdiction, as each of the tax haven areas has its own benefits and disadvantages. Here is our top pick of the jurisdictions we usually recommend to our clients for LLC incorporation.
Ireland is a natural gateway to Europe. Changes in commercial legislation regarding the residence of directors and the low corporate tax rate make Ireland the perfect place to incorporate your limited liability company, offering long-term, prestigious, low-tax solutions and ready-made companies with VAT, nominees and remote services available.
Latvia - the optimum solution for VAT triangle trading operations in Europe, allowing you to establish a tax-resident company from day one, with cheap and easy maintenance. A residence permit programme is available for company shareholders. Ready-made companies with VAT are available, as well as nominees and remote banking services.
Gibraltar is a British overseas territory and part of EU, as it was a member of the European Economic Community (EEC). Taxes in Gibraltar are calculated based on income “accruing in or derived from Gibraltar”, i.e. gained from a business, transaction or property situated on the territory of Gibraltar at a flat rate of 10%. To determine whether or not corporate profits have accrued in or derived from Gibraltar, local tax authorities evaluate the location of the activities that generated the profit. Currently, Gibraltar has no tax on capital gains, no wealth tax, sales tax or VAT. Bear in mind that import duty is payable on most items at a flat rate of 12%.
Belize is a small country on the eastern coast of Central America, to the south of Mexico, formerly known as British Honduras. This jurisdiction has a lot to offer international investors as well as corporate giants, with its favourable tax regime and banking legislation. Under the provisions of the International Business Company (IBC) Act of 1990, companies resident in Belize are fully exempt from all types of taxes and stamp duties on income from any source.
The Seychelles is one of the most sought-after offshore jurisdictions, offering a low-tax regime to international investors and entrepreneurs. The government has invested a lot of funds in order to turn the islands into the prestigious offshore we know today. Over the last few decades, the Seychelles has seen a dramatic modernisation of its legislation, which has resulted in the development of an up-to-date, but reasonably strict, tax haven.
Confidus Solutions will help you evaluate all of the possible options and choose the most efficient, tailored solution to achieve your personal goals. We have many years of expertise in this area and our experienced agents and lawyers can incorporate your company in any jurisdiction worldwide. If you require more information, take a look at our offered solutions or contact us for an offer unique to you.