What does this acronym that you must have encountered dozens of times refer to when talking about starting a business in the USA?
Is it the best legal structure to consider, and what are its advantages?
Let’s discover together the characteristics of this legal structure, which is highly popular among foreign entrepreneurs.
What is an LLC in the United States?
The English acronym LLC stands for Limited Liability Company and is used for limited liability companies in the United States. Since liability is limited, this means that the members of an LLC are protected by definition. They therefore cannot be held personally liable for the company’s debts. Choosing an LLC is the simplest solution if you want to start your business in the United States. In fact, an LLC is the most straightforward legal form for creating a company there. But that’s not all: an LLC offers its owners many advantages in terms of taxes, profits, and losses. An LLC is a hybrid model between a corporation – in terms of limited liability, and a partnership – in terms of its flexible organization. Note: An LLC has no equivalent under French law. Legally, it is similar to an SARL, while for tax purposes it is similar to an SCI taxed on income.A brief history
Originally, there were 3 types of legal structures for starting a business in the United States: sole proprietorship, partnership, and corporation. It was not until 1977 that the LLC was invented in the state of Wyoming to meet a new economic and commercial need. Only after the Internal Revenue Service - IRS (the equivalent of the tax authorities) gave its approval did all the other American states legalize the creation of LLCs in their states. But what need did it address? There was a need to create a structure that could be managed and taxed like a partnership while protecting its members from potential debts and losses as if it were a corporation. Also, the initial legal provisions stipulated that an LLC had to consist of at least two members. It is now entirely possible for an LLC to consist of just one member.What are the advantages of an LLC?
If you choose an LLC to start your business, you should keep in mind the advantages this type of legal structure provides.Possibility of not being a U.S. resident
- Any foreigner can open an LLC in the USA without residing in the USA. You can open your LLC and live abroad.
Legal protection against debts
- Personal: with an LLC, your company’s creditors cannot pursue you personally. Your assets are therefore protected;
- Business-related: it is the only type of company that prevents personal lawsuits and creditors from liquidating your business in response to a judgment.
Flexibility
- Unlike other structures, an LLC is much more flexible and less expensive. This is a real advantage for entrepreneurs.
Pass-through taxation
- An LLC’s income and expenses are distributed to its members (an LLC uses the term “member,” not partner or shareholder), allowing members to avoid double taxation at both the company and member levels.
- Taxation may be zero in the USA if the company is considered non-ETBUS (“Engaged in a Trade or Business in the US”). Remember that it is not the company but its members, in their country of tax residence, who are taxed. This applies only to what is known as active income.
No limit on the number of members
- You can have as many members as you wish with an LLC in Florida, USA.
