A limited liability company (hereinafter referred to as LLC) is a trading company with legal personality status. Typically, an LLC’s equity is made up of the total face value of its equity interests. One of the main characteristics and advantages of an LLC is the fact that shareholders cannot be held personally responsible for the debts or liabilities of the company – only the company’s assets are at risk. However, the issue of limited liability also depends on the national law of the jurisdiction concerned. In general, an LLC is a corporate structure that combines 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 the jurisdiction is well chosen.
A key difference between a public company and an LLC is that the latter is always a closed company and its shares are not publicly traded. Internationally, another common name for an LLC is a private liability company, or simply “Ltd”. This term is widely used in the UK and some other common law countries.
Choosing the right legal form for your business can be critical to tax planning, profit sharing and cost reduction. There are some key differences between them, and each has its own advantages and disadvantages depending on the case. Therefore, effective business planning prior to founding is essential.
Limited liability company functions
There are no special circumstances in which you would be required to set up a limited liability company. An LLC is a type of legal personality that successfully combines most of the most desirable attributes of other types of businesses, which explains why most entrepreneurs choose an LLC when starting a business. Additionally, there are simplified accounting and record keeping requirements for LLCs in many offshore jurisdictions.
Typically, we would recommend that our clients consider an LLC as a viable option if they want to start a trading company or a small business within certain limits. LLCs are perfect for those looking for a way to run a business (local or international) and distribute profits with minimal cost. However, you should always keep in mind that an LLC typically does not provide an effective mechanism to induce a partner with limited voting power or large numbers of investors into your business. In these cases, we encourage you to consider a limited partnership or a public company, as these may be more effective ways of achieving your goals. Starting an offshore company in a tax haven can be a great way to cut 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.
