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-resident aliens of the U.S. can typically avoid all U.S. federal taxes for their non-U.S. business activities.
The Delaware Corporate law structure does not impose restrictions on foreign ownership or management, and it does not require a Delaware LLC to have any presence in Delaware except for a registered office and registered agent.
Unlike other states, Delaware requires very little information to be made public in order to form an LLC. In Delaware, members and managers are not required to be named in.
When all the LLC’s income is “Non-United States Source Income” (as defined by the IRS), the non U.S. members of the LLC are typically not subject to U.S. federal income taxation. The non U.S. clients can take advantage of Delaware’s freedom of Contract and strong U.S. legal infrastructure, without having to provide any member information for public record, and the ability to operate anywhere in the world they choose, without being subject to filing U.S. tax forms.
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 confidentiality 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 is not required to be translated into English.
The Delaware LLC statute allows parties to define their business relationship in a 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. .
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 being a member or acting as a manager. This limitation on personal liability compares favorably with the limitation on personal liability enjoyed by shareholders of a Delaware corporation.
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 Subhapter 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 a 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.
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