The concept of the LLC was introduced in US company law comparatively recently - in the 1970s. Notwithstanding this short period of its existence, the LLC has become the most popular choice of company not only of US entrepreneurs, but also outside the USA.

     An LLC is a company with limited liability, i.e. its structure is analogous to the German GmbH, the Spanish S.L., and the French SARL.

     The State of Wyoming was the first US State to adopt legislation on LLCs, in 1977. In 1982 its example was followed by Florida, and then by other States. Now registration of an LLC is possible in any of the 50 states of the USA, as well as in the District of Columbia.

     The rapid growth of the LLC's popularity started in 1988, when the US Internal Revenue Service defined the status of those companies for taxation purposes as equivalent to the status of a partnership, thus freeing LLC from paying taxes at the level of the company itself (more detailed information about the taxation of LLCs is provided below).

     One or more members form a Limited Liability Company, by drawing up Articles of Organization, and then submitting them to the Register of Enterprises of the relevant State. Each member of the LLC owns a certain number of membership units - unlike the case of a corporation, LLC legislation does not require the issue of shares, and the fact of LLC ownership is defined by possession of membership units.

     Two distinct types of LLC exist, distinguishable by their management:

     The form of the company's management, i.e. whether the company is a member-managed LLC or a manager-managed LLC, appears in the text of the Articles of Organization of the company.

     The conversion of a member-managed LLC into a manager-managed LLC (and vice versa) is effected by registration of the relevant addendum to the Articles of Organization in the Register of Enterprises of the relevant State.

     Taxation of LLCs
The immense popularity of American LLCs with entrepreneurs from various countries rests on the fact that these companies enjoy a privileged status in tax law. In particular, provided that certain conditions are satisfied, US legislation considers the LLC for tax purposes as a pass-through entity; that is to say, the income derived by the LLC is not regarded as the company's income and is not subject to taxation at the company level. Rather it is regarded as income derived directly by its members.

     At the same time, the entrepreneur should take into consideration that incorporation of an LLC alone is not sufficient for tax exemption. The LLC will be a valid tax-exempt vehicle only if its corporate structure and constitution are drawn up in the optimum manner and in strict conformity with US legislative norms. It should be noted that the tax-exempt status of LLC is based on the fact that the taxation of income derived by the LLC is automatically transferred to its members. Let us consider two examples related to this issue.

     Example 1. A Polish businessman, N, has incorporated an LLC in the USA, and he and his business partner M. are the members. In this case, the income derived by the LLC, from the USA perspective, is automatically considered as income derived directly by Mr. N. and Mr. M. Being residents of Poland, they must, in accordance with the bilateral agreements between Poland and the USA, containing provisions on information exchange and legal assistance, declare all their income at the place of their residence in Poland and pay the appropriate income tax.

     Example 2. A Czech businessman, L, has acquired an LLC incorporated in the USA, the nominee member of which is a company incorporated in Cyprus. In this case, all the income derived by the American LLC is regarded in the USA as income derived by the Cypriot company and it must be declared in Cyprus in accordance with local legislation, and is subject to Cypriot tax, at the rate of 10%. If the income is not declared in this way, the LLC can be prosecuted for tax evasion.

     The above examples prove that it is very important for the entrepreneur to choose the proper structure for the LLC, and to arrange for a valid nominee service for it, with a view to securing tax-exempt status for the entire arrangement.

     INTERNATIONAL OVERSEAS SERVICES professionals are always ready to provide assessment of your LLC as regards its corporate structure and taxation status, to assist in restructuring the company in accordance with US legislation if necessary, and to provide all nominee services to ensure its tax-exempt status.