Form an LLC in USA
US Limited Liability Company Features
The US LLC phenomenon began in 1977 in Wyoming and has since spread to all 50 states of the United States. The advantage varies from state to state, however, Delaware and Oregon are considered by many to be most favorable.
The Limited Liability Company (LLC) is a hybrid of several business forms (partnership, C corporation, limited partnership) and has the following features:
Taxes on US LLC
- The LLC itself is not liable to US taxes. Members of a US LLC are not liable to United States tax as long as:
- The members are non resident aliens.
- The LLC does not employ US residents as permanent staff or rely on a dedicated place of business within the United States.
- The LLC does not undertake any business activity that is effectively connected with business or trade within the US
The members who are US residents are personally liable for taxes similar to a partnership. Non-resident members are liable for taxes on income derived from the US. The LLC protects its member’s personal assets from company debts and other liabilities. (Limited Liability status)
LLC Formation Requirements
- An LLC has a limited life span and as defined in the organization form.
- The only document required for registration is the Articles of Organization which is filed with the local Secretary-of-State.
A well structured Limited Liability Company (LLC) organized in the United States provides an on-shore, tax free, alternative to a traditional Offshore International Business Corporation (IBC).
Other Types of US Business Organizations
In the United States there are four types of organizations which may conduct business or trade. These business forms are:
- Sole proprietorship
- Partnership (General and Limited)
- Corporations (“C” Corporation and Subchapter “S” Corporation)
- Limited Liability Company (LLC)
A Sole Proprietorship is a single person, owner operated business which has no registration requirement or any of the other formalities of other business types. The tax liability is on a personal taxation basis and there are no personal limitations or protection from law suits, debt and other liabilities incurred.
A General Partnership is similar to a Sole Proprietorship with the exception that, as the name implies, is formed by two or more individuals. A Partnership Agreement may exist which can be a verbal agreement between partners. Each partner shares in the profits at an agreed upon formula and each is taxed on a personal tax basis.
There is no liability protection for the partners who may be sued for debt and other liabilities incurred by the partnership. Each partners’ liability is not limited and therefore exposes the partners’ personal assets.
The Limited Partnership is a registered partnership (Registered with the state). A formal partnership agreement must exist, and there must be a general partner, who has total responsibility for the partnership. The limited partners are limited in their liability for debts or other liabilities of the partnership and therefore their personal assets are protected.
The “C” Corporation is the regular business form in which the owners purchase shares and the incorporation documents include Articles and Memorandum of Association. The “C” Corporation of the US may be compared with the UK’s Limited Liability Company “Ltd.”, the German company “GmbH” or the French company “SARL”, all of which are limited by shares. There are stringent regulations which govern the operation of a US Corporation. A Board of Directors must be appointed and report to the shareholders at an Annual General Meeting. The board is responsible for the management of the corporation through its officers. The profit of a corporation is taxed at a corporate rate. If dividends are declared and paid to its shareholders, the shareholders are again liable for tax at a personal level for the dividends received. Shareholders are protected against company debts and other liabilities.
A Subchapter “S” Corporation is like the “C” corporation except for the following:
- It is limited to 75 shareholders
- Shareholders shall not be corporations, partnerships, pension plans, charitable organization and certain trusts.
- Non-resident aliens shall not be shareholders.
- Taxes are on a flow through-basis, that is, the profits are taxed as the personal income of the shareholders.