US Company Formation
Why choose a C corporation?
When registering a company, C corporation or C corp is the most common corporation type, but it isn’t always the top choice for small business owners. C corporations provide limited liability protection to owners, who are called shareholders, meaning owners are typically not personally responsible for business debts and liabilities. C corporations may also offer greater tax advantages because of an expanded ability to deduct employee benefits, which are most often used by growing businesses.
C corp advantages
C corporations typically provide a number of advantages:
- Limited liability protection. Owners are not typically responsible for business debts and liabilities.
- Unlimited owners. C corps can have an unlimited number of shareholders.
- Easy transfer of ownership. Ownership is easily transferable through the sale of stock.
- Unlimited life. When a corporation’s owner incurs a disabling illness or dies, the corporation does not cease to exist.
- Raise capital more easily. Additional capital can be raised by selling shares of stock.
- Credibility. Corporations may be perceived as a more professional/legitimate entity than a sole proprietorship or general partnership.
- Lower audit risk. Generally C corporations are audited less frequently than sole proprietorships.
- Tax deductible expenses. Business expenses may be tax-deductible.
- Self-employment tax savings. A C corporation can offer self-employment tax savings, since owners who work for the business are classified as employees.
Why choose an S corporation?
S corps are corporations that have elected a special tax status with the IRS. S corporations provide the same limited liability to owners (called shareholders) as C corporations, meaning that owners typically are not personally responsible for business debt and liabilities; however, S corporations have pass-through taxation. S corporations do not pay tax at the business level. They file an informational tax return but business income/loss is reported on the owners’ personal tax returns, and any tax due is paid at the individual level.
S corp advantages
Many small business owners form a corporation and elect S corp status for pass-through taxation. Other typical advantages include:
- Limited liability protection. Owners are not typically responsible for business debts and liabilities.
- Easy transfer of ownership. Ownership is easily transferable through the sale of stock.
- Unlimited life. When a corporation’s owner incurs a disabling illness or dies, the corporation does not cease to exist.
- Raise capital more easily. Additional capital can be raised by selling shares of stock.
- Credibility. Corporations may be perceived as a more professional/legitimate entity than a sole proprietorship or general partnership.
- Lower audit risk. Generally S corps are audited less frequently than sole proprietorships.
- Tax deductible expenses. Business expenses may be tax-deductible.
- Self-employment tax savings. An S corp can offer self-employment tax savings, since owners who work for the business are classified as employees.
S corporation ownership restrictions
Per IRS guidelines, S corporation owners (shareholders) must meet the following criteria:
- Number 100 or less.
- Must be US citizens/residents (cannot be non-resident aliens).
- Cannot be C corporations, other S corporations, limited liability companies (LLCs), partnerships or certain trusts.
Why choose an LLC?
LLCs provide limited liability protection to their owners (called members). Typically, owners are not personally responsible for business debts and liabilities of the company so creditors cannot pursue owners’ personal assets to pay business debts.
Advantages of an LLC
Business owners stand to gain many benefits when they register a company as an LLC. These benefits are, in many cases, unavailable to sole proprietorships and general partnerships. Creating an LLC typically provides the business owner with the following advantages:
- Limited liability protection. Owners are not held personally responsible for business debts and liabilities.
- Pass-through taxation. Typically LLCs do not pay taxes at the business level. Income/loss is reported on the owners’ personal tax returns and any tax due is paid at the individual level.
- No ownership restrictions. LLCs do not face restrictions on the number or type of owners.
- Flexible management. Owners have flexibility in structuring company management.
- Fewer ongoing formalities. LLCs have less annual paperwork than, and do not face the meeting requirements imposed on C corporations and S corporations.
- Credibility. LLCs may be perceived as a more legitimate business than a sole proprietorship or general partnership.
- Consent to add owners. Written consent of LLC members must be obtained prior to increasing ownership in the company or adding new owners.
Why choose a limited partnership?
A limited partnership (LP) is similar to a general partnership while still offering limited liability protection to some of the partners. In an LP, at least one partner must be a general partner with unlimited liability, and at least one partner must be a limited partner whose liability is limited to the amount of his or her investment. Limited partners act as “silent partners” making a capital investment much like passive shareholders in a publicly traded corporation but having no involvement in the management decisions of the business.
An LP allows for pass-through taxation, as its income is not taxed at the business level. Income or losses are reported on the partners’ tax returns, and any tax due is paid at the individual level. Limited partners can use losses to offset other passive income on their tax returns. General partners’ losses can be used to shelter other income up to the value of their investment in the partnership, since their losses are not usually considered passive.
Advantages of a limited partnership
LPs are especially appealing to businesses where a single, limited-term project is the focus—such as the film industry, real estate or estate planning. Advantages of LPs typically include:
- Limited liability protection. Limited partners are not typically held responsible for business debts and liabilities.
- Pass-through taxation. Income tax is not paid by the business. Profits/losses are reported on the partners’ tax returns, and any tax due is paid at the individual level.
- Control over day-to-day operations. General partners have full control over all business decisions.
- Flexible management. Partners have more flexibility in management structure.
- Fewer formal requirements. LPs face fewer formal requirements and paperwork than corporations.
- Additional source of investment capital. Adding limited partners provides additional sources of investment capital.
Offshore Company Formation
British Virgin Islands (BVI) isconsidered one of the oldest and most respected offshore financial centres in the world. Currently there are over 480,000 registered companies as compared to the Cayman with only 85,000.
The main considerations for forming a BVI company:
* Maximum security of assets includes the ability to transfer domicile
* The directors may protect the assets of the IBC for the benefit of the IBC, its creditors and its members by transferring its assets to another company, trust, foundation, association or partnership; and merge or consolidate with any other company or foreign corporation in another accommodating jurisdiction.
* International Business Companies are exempt from all local taxes and stamp duty
* Maximum, confidentiality and anonymity are provided by BVI bearer shares being available by the absence of any requirements to file any organizational or accountancy information with the Registrar of Companies, (other than the memorandum of Articles of Association), and by share registers being available for inspection only by company registered shareholders or by order of the BVI court.
* Ease of operation, maintenance and control are facilitated by flexible corporate features.
*A BVI company can re-quire and re-issue their own shares.
*Shares can be issued for a consideration other than cash, with or without par value, and be denominated in any currency.
* Only one subscriber and thereafter one shareholder is required.
* Single directord are permitted.
* Shareholders' and directors' meetings are not confined to the British Virgin Islands.
* Books of account, records and minutes can be maintained outside the BVI.
* There is no statutory requirement to hold annual general meetings.
* BVI Business Company offers greater offshore asset protection benefits.
* The BVI government is stable.
Uses for a BVI Business Company:
A variety of application are possible with a BVI Business Company, including investmenst, property holding, financial management, trading and copyrighting and/or licensing. Unlike many other jurisdictions, there are no disclosure requirements, nor any minimum capitalization regulations, nor any prohibitive license fees pertaining to trust and trustee companies for application in private-label trust company, unit and mutual fund situations.
Cost Effective
Formation is less expensive as compared with the more traditional centers such as Bermuda, Cayman, Liechtenstein, Luxembourg, and Switzerland.