LLC vs. Ltd?

[Torsten]

Hi,

What type of company entities are most recognized and established in the US? In other words, which abbreviation do US customers recognize and trust more -- an LLC or an Ltd? Also, do US customers trust a corporation more than they would an LLC?

Many thanks,
Torsten

TOEIC listening, photographs: Behind the counter

[Khaintm]

Dear Torsen,

I'm feeling very interested in this subject, but really, it's a strange question with me. I'm living in Vietnam, so I haven't yet heard about LLC. Could you please let me know about LLC exactly? It's out of my knowledge.

By the way, I'm grateful for your help to improve my English skills.

[Prezbucky]

LLC = Limited Liability Company

The lure of becoming an LLC is that you can avoid the double-taxation of corporations (revenue is taxed at both the corporate and individual levels) while retaining limited liability: unlike sole proprietorships or partnerships, members of LLCs cannot be sued beyond their monetary involvement in the LLC. In other words, if my LLC somehow causes you to fall and break your arm, only the LLC itself can be sued -- you cannot go after my personal assets.

To become an LLC -- that is, to be able to avoid double-taxation and enjoy the security of limited liability -- the LLC must choose four of six possible limitations.

I'll list those limitations tomorrow. Off the top of my head, one of the choices is to set an end date for the LLC -- to make the LLC mortal (finite in age), so to speak.

As for "Ltd", I'm not sure if that has any actual legal bearing in the US -- I think it's just a thing to add at the end of a firm's name.
_________________
Billie Jean is not my lover. Hee.

[Torsten]

Hi Tom,

Do you happen to know whether it's possible for German citizens living in Germany to register an LLC in the US? Also, what exactly does 'Inc.' stand for? According to Wikipedia it means 'Incorporation' which is the formation of a new company. However, companies like Google carry this abbreviation too and as far as I know Google is not a new company.

Here is another interesting sentence I've found in Wikipedia: "Incorporated, Limited and Corporation, or their respective abbreviations (Inc., Ltd., Corp.) are the possibilities for this legal ending in the U.S."

Does this mean that 'Ltd.' is indeed a legal ending in the US and you simply are not aware of it?

Thanks,
Torsten

TOEIC listening, photographs: The sight test

[Jamie (K)]

There are several types of corporations in the US, and you can see them explained here:
http://www.activefilings.com/en/information/types.htm

All of them have in common that they limit the shareholders' personal liability in legal or business disputes. The only differences are details of taxation, etc.

"Inc." means "incorporated". All it says about the company is that it has the legal status of a corporation (i.e., an artificial person), and that its owners' personal assets are protected. In the US you will also see "PC" behind the names of many doctors. This means "private corporation" and that the doctor's personal assets are protected against liability.

"Ltd." has no legal status in the US, as far as I know, and it's just added to the names of corporations to make them sound "classy" and maybe even "British". You will also find that some corporations use the word "Unlimited" at the end of their business name, such as "Movies Unlimited" or "Mustangs Unlimited". This has no legal significance and is just a pun on the British term "Ltd." It's supposed to indicate that they provide an unlimited choice of products and services.

I don't think Americans distinguish, in terms of trust, between companies that are regular corporations or LLCs.

Incorporation laws vary from state to state, so it's not possible to say who can and can't incorporate "in the US". However, it must be possible for foreigners to incorporate here, because so many companies do it. Some foreign companies -- including some German ones -- have, in the past, basically turned themselves into de facto US corporations by expanding their American subsidiaries and reducing their European operations so much that their original "home offices" were really just branches of the US operation. Companies often cherry-pick the state they incorporate in, based on the advantages state laws offer to their type of business. Financial companies often incorporate in Delaware or one of a few other states that have no usury laws. Some companies incorporate in states that have no income taxes.

One big difference you'll notice is that in the US you don't need to have a large cash reserve to form a corporation. My understanding is that in Europe you need a lot of cash to incorporate, possibly as much as 50,000 euros. In the US you simply need enough money for the fee to process the incorporation papers, which varies depending on the state, but can be as little as $35. Another difference is that in the US you are allowed to explain the purpose of the corporation very vaguely, so that you don't have to keep going back and amending the papers every time you enter a new line of business, the way people have to do in Europe.

[Torsten]

[Prezbucky]

That's not too shabby.

As for whether Germans can register LLCs in the US, I'm not sure.

Okay, this is straight out of my old Business Law text:

In order to be taxed as a partnership instead of as a corporation, an LLC can possess only four of the following six corporate attributes (I had it backwards -- they're attributes, not limitations, but again they only get to choose four):

1) Associates
2) An objective to conduct business and divide gains
3) Limited Liability
4) Centralized management
5) Continuity of life (perpetuity)
6) Free transferability of interests

If I were starting an LLC right now, I would choose 1-4 as my attributes -- I need people with whom to work; I need to conduct business and divide gains; I'm in an LLC partly because of the liability limits; and centralized management is nice.

I don't need continuity of life -- I can simply put an end date on the LLC... oh, let's make it 3000 AD. And i can place a small fee on interest transfers (no big deal).
_________________
Billie Jean is not my lover. Hee.

[Jamie (K)]