Limited liability companies

[Rick Rodriguez]

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.

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.