Formation of USA Limited Liability Company (Delaware LLC)
In October, 1991, Delaware enacted the legislation which enables the formation of a Delaware Limited Liability Company (LLC). An LLC is a combination of a corporation and a partnership which has become extremely popular in recent years. Like a corporation, an LLC has a legal existence separate from its owners; and the owners and managers are not personally liable for the company’s debts and obligations. Like a partnership or an S-corporation, an LLC is automatically treated as a pass-through entity for tax purposes. Key elements of a Delaware LLC include:
- A creditor of the owner of a Delaware LLC cannot seize the assets of the LLC.
- A single-member Delaware LLC is automatically disregarded as an entity separate from its owner and includes all of its income and expenses on the owner’s 1040 tax return.
- A Delaware LLC with two or more members is treated as a partnership.
- There is unmatched contractual flexibility with a Delaware LLC. Delaware law provides rules only on matters on which the members have failed to agree. This is known as ’freedom of contract’ and nowhere is it stronger than in Delaware.
- Personal liability is limited for owners and managers to the amount of their investment in the company, just like a corporation.
- Non-U.S. owners of a Delaware LLC with no U.S. source income pay no U.S. taxes whatsoever. A Delaware LLC may be formed by one or more organizer or member.
The Delaware LLC company may not use a name identical or similar to an existing company within the State of Delaware. The use of the following words is also prohibited: Bank, Insurance, or Reinsurance. After Delaware company formation, the Limited Liability Company must have these words after the company name or the abbreviation thereof i.e. Limited Liability Company, L.L.C., or LLC.
An LLC does not issue shares and therefore does not have shareholders. The owners of an LLC are referred to as members. A Delaware LLC may have a minimum of one Member (owner) or more. Each member of a Delaware LLC is liable only to the extent of his or her percentage of ownership in the LLC. Members may be an individuals or corporate bodies. There is no limit on the number of members allowed in a Delaware LLC.
The management of a Delaware LLC is based on an agreement between its owners, who are known as members. A Delaware LLC allows a customized management structure, which dictates the economic relationship among owners. While Delaware law permits a Delaware LLC to be managed by its members, it does not require members to be managers. The Delaware LLC statute allows parties to define their business relationship in the written agreement however they wish. This is called Freedom of Contract. Delaware Law provides rules only for those matters on which the parties have failed to agree. The contractual flexibility offered by the Delaware Act is unmatched by any other LLC statute. For example, unlike a corporation, an LLC can distribute profits in any manner described in the LLC agreement, regardless of ownership share. The structure of the LLC does not provide for a Board of Directors.
Registered Office And Local Agent/Secretary
Delaware law requires for Delaware LLCs to have a registered agent when Delaware LLC is first formed and throughout the life of Delaware company. The registered agent’s name and address are included on the formation documents. This information is a matter of public record. The registered agent is responsible for receiving important legal and tax documents including: notice of litigation (service of process), franchise tax forms and annual report forms.
There are no statutory requirements concerning meetings of members or record keeping. It is recommended that with two or more members, Members’ Agreement be entered into. If meetings are held by members, this may be done anywhere in the world and in any way convenient to the members.
Usually 1 business week. We require up to 10 working days for legalization of the documents and delivery by courier.
Delaware Limited Liability Company (LLC) does not pay US state or federal income tax if its owners are not US citizens or green card holders, its offices are located outside of the U.S., and the LLC does no business in the U.S. The IRS tax treatment of a Delaware LLC is on the flow-through tax basis. That is the LLC is not taxed on its profits. The income of the LLC is distributed to its members who are taxed on a personal income basis.
Non-resident aliens are not taxable by the U.S. on income derived out of the U.S. If an LLC derives its income outside of the U.S., the non-resident aliens do not file tax returns.
Audit And Financial Returns
Delaware LLC is not required to file state or federal tax returns. Whilst there is no requirement to file audited accounts or annual returns with the authorities, a company is required to keep financial records, which should reflect the financial position of a company. An Annual Report is required only in cases, where there is distribution of profits to U.S. residents.