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|  | An LLC is a relatively new type of entity in the U.S. It combines the limited liability of a corporation
with the pass-through taxation of a partnership. Owners (or members, as they are called) of an LLC can be individuals or any
type of entity, from anywhere in the world, and unlimited in number.
Using a Delaware LLC, non-residentsof
the U.S. can legally avoid all U.S. federal taxes for their non U.S. business activities.
American clients
use LLC's for the tax benefits also, but the primary reason for using the LLC in the USA is its heightened protection
against judgment creditors. In a General Corporation, formalities must be followed or creditors can destroy the protection
from personal liability by "piercing the corporate veil". These formalities, such as stockholders and directors
meetings, minutes, officers and director elections can be eliminated in the LLC, thus making it much more difficult to pierce.
Also, a judgment creditor of a member of an LLC cannot seize control of the assets of the LLC, or the member's
voting rights, as they may be able to with a corporation.
The LLC is a hybrid business vehicle that combines some
of the best features of corporations and partnerships. Like a corporation, an LLC has a legal existence separate and distinct
from its owners; and its owners and managers are not personally liable for the company's debts and obligations. Like a
partnership, an LLC can be treated as a pass-through entity for tax purposes. This feature, when combined with non-U.S.
source income, means non resident aliens of the U.S.A. will avoid all U.S. taxation when using an LLC.
The
operations and management of the LLC are governed by a written agreement among its owners that is not required to be publicly
filed or disclosed to the Delaware Division of Corporations. As a result, an LLC allows secure anonymity and the ability
to create a customized management structure, which prescribes the economic relationship among owners. The agreement
can be written in any language and it is not required to be translated into English.
The Delaware LLC statute allows
parties to define their business relationship in the written agreement as they so desire. This is called "freedom
of contract". Delaware Law provides rules only for those matters on which the parties have failed to agree.
The stated policy of the Delaware LLC law is to give maximum effect to the principle of "freedom of contract" and
to the enforceability of LLC agreements. The contractual flexibility offered by the Delaware Act is unmatched by any
other LLC statute.
If you properly "check the box" when applying for an EIN, a Delaware LLC
will be treated as a partnership for Federal income tax purposes; therefore, it will not be subject to U.S. Federal income
tax. For non-resident aliens of the USA, this means Delaware is an attractive jurisdiction for benefits typical of
many "offshore Jurisdictions". Combine that with the added strength of the USA's fiscal infrastructure,
and you have an attractive comparative advantage.
While the Delaware Act permits a Delaware LLC to be managed by
its members, it does not require members to be managers. More importantly, it also provides that no member or manager
is obligated personally for any debt, obligation or liability of the Delaware LLC solely by reason of such person's
being a member or acting as a manager. This limitation on personal liability compares favorably with the limitation on personal
liability enjoyed by stockholders of a Delaware corporation.
If properly selected on the SS-4 form, a Delaware
LLC will be treated as a partnership for Federal income tax purposes; therefore, it will not be subject to U.S. Federal
Income Tax. This means that a Delaware LLC can offer the same tax advantages as a Chapter S corporation or a limited
partnership, including the ability to provide through a written agreement for allocations of income and/or distributions to
members in amounts which differ from the members economic interest in the LLC, as well as the ability to provide basis to
members for non-recourse debt. A Delaware LLC will also provide greater tax flexibility in areas of distributions and can
be used as a valuable tool for estate planning and wealth transfers.
Key Elements of the LLC: - Not taxed
by the IRS at the entity level, if partnership tax treatment is selected on the SS-4 form
- A creditor of a member
of an LLC cannot seize control of the assets of the LLC, or a member's voting rights
- There is unmatched contractual
flexibility with a Delaware LLC
- Corporate formalities like minutes, bylaws, meetings, officers and directors can
be eliminated in the LLC agreement
- Personal liability is limited for owners and managers to the amount of their investment
in the company, just like a corporation
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