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FAQ

A LLC is a business entity that offers limited liability protection to their owners and pass-through taxation. The owners are not personally responsible for business debts and liabilities of the limited liability company. Allowing the protection of personal assets of the owners and restricting creditors from pursuing it to pay business debts.

LLC has a few disadvantages despite its attractive features. Most importantly, a LLC has to be dissolved upon the death or bankruptcy of a member, unlike a corporation, which can exist in perpetuity. If the objective of the founder is to eventually become a public listed company, then LLC is not the option. 

A LLP is a business entity usually incorporated by professionals who require a licence to run their business. For instance, attorneys, architects, accountants, doctors, dentists etc. LLP is similar to a limited liability company, but may not have the same form of protection as offered to a LLC. All partners in an LLP have limited liability for business debts. 

The Limited Liability Partnership is restricted to professionals like doctors or lawyers. Individual partners are not obligated to consult with other participants in certain business agreements. It is advised to outline a partnership agreement that specifies the flexibility and limitation, and role of each partner in taking business decisions. 

It is the easiest and least expensive form of business entity wherein new entrepreneurs or business owners begin a company. This form of incorporation does not require state filing. The loss or income is reported on the sole proprietors personal tax return. Any tax payment is done at the individual level.

Incorporating Sole Proprietorship involves some risks, especially to the owner of the business, as legally they are not treated separately from the business. 

The business owner will be held directly responsible for any losses, debts or violations coming from the business. One of the drawbacks in terms of tax payment is that the owner must pay self-employment taxes. Certain taxes like health insurance premiums for employees will be deducted. Lack of continuity persists since the business must be liquidated on the occasion of the owner’s death.

A Limited Partnership is a business entity that offers limited liability protection to some partners. At least one partner must be a general partner with unlimited liability. One or more partners are liable only to the extent of the amount of money that partner has invested. Limited partners do not receive dividends, but enjoy direct access to the flow of income and expenses.

An individual acting as general partner assumes personal liability unless the partner forms an LLC, corporation or other company with limited liability protection. It requires paying state filing fees.

This form of incorporation provides all partners with unlimited liability, which means their personal assets, are liable to the partnership’s obligations.

In a general partnership, it is necessary to outline the role of each partner and the limitation of their liabilities in the business. Or else, an innocent partner can be held responsible when other partner commits inappropriate or illegal actions. 

Limited by shares means that the company has shareholders. The shareholders' obligation is to pay the company for the shares they have taken in it. The individual puts money into the company, and in return the company gives it a percentage of ownership, in the form of shares. 

The liability of the shareholders to creditors of the company is limited to the capital originally invested, which is limited to the nominal value of the shares and any premium paid in return for the issue of the shares by the company. 

In this form of company, there are no shares involved and hence no shareholders. Instead, the company will have ‘members’. The members of this company are bound by a guarantee in the company’s articles of associations, which requires them to pay the company’s debts up to a fixed sum. 

When a company is ‘unlimited with share capital’, the shareholders have unlimited liability for debts that the company may accrue. Therefore this form of company structure mostly applies to very low financial risk corporations and is rarely used. There are no strict requirements on the movement of share capital in this type of entity.

An international business company is a limited liability company which is used legally, by corporations and individuals throughout the world to direct profits out of high tax countries into other jurisdictions or international financial centres thus taking advantage of low or zero tax and double tax treaties.

A legal entity that acts as an executor, guardian, fiduciary, agent or trustee on behalf of a person or business entity to administer, manage and eventually transfer the assets to a beneficial party is known as a Trust Company. It is usually a division or an associated company of a commercial bank.

Trusts are of 2 types – Public and Private Trusts. Under this Private Trusts are usually used for business purposes. Private Trust comprises of 3 namely:

Discretionary Trusts – Also known as Family Trust, it is commonly used for the benefit of their families. The primary feature being that the Trustee determines which Beneficiaries receives income/capital, when and how.

Fixed Trusts – The Trustee must distribute assets and income in specified proportions to Beneficiaries strictly in accordance with the terms set out in the Trust Deed.

Unit Trusts – One of the best types of Trust for non-family businesses. Large companies usually incorporate a Unit Trust. It has similarities to shareholders holding shares in a company. Here, Beneficiaries hold “units” in the Trust. All units have a pre-determined value, entailing the Beneficiary with more number of units to obtain greater share of assets and income.

A Foundation is an attractive alternative to a common law trust and is appropriate for those who want to retain an element of control over how their assets are managed.

Advantages of a Foundation are listed below:

  • It is a separate legal entity
  • Assets placed into a Foundation become the property of the Foundation itself both legally and beneficially and are separate from the Founder and any Beneficiaries
  • Foundations are clearly governed by the law in the jurisdiction where established
  • Foundation is an incorporated body with clear statutory laws and regulations governing it in the jurisdiction
  • On the death of the Founder, there is no need to make a will

The list of activities of a Foundation are stated below:

  • Wealth Protection
  • Inheritance/succession planning
  • Protection and management of assets
  • Avoidance of forced heirship rules
  • Charitable purposes
  • Pension funds
  • Holding art collections
  • Receive and manage capital and titles
  • Minimising international income, capital gains and estate taxes

A branch of a foreign company that operates in a chosen jurisdiction is legally part of the foreign company and is not its own entity. It is important to understand this key factor, since it means that the foreign company’s head office bears the ultimate responsibility for any liabilities arising due to the acts of commission or omission of the branch office. 

It is administratively easier to maintain than a company. In addition, closing a branch is easier than liquidating a company. It is suitable to those foreign companies who wish to expand their operations in an offshore jurisdiction.

A Protected Cells Company is a limited liability company and has a board of directors. A PCC may create one or more cells, the assets and liabilities of which are segregated from the assets of the PCC itself (the core) and from the assets and liabilities of other cells.

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