There are two main types of American business entities: the “corporation,” indicated by the term Inc, and the “Limited Liability Company,” abbreviated as LLC. Besides the Inc and LLC, there are other forms such as an S-corp, General Partnership, or Series LLC. Here, we will focus on the two most well-known business structures. For a non-resident of the U.S. establishing a new business, it's crucial to understand the differences between these types of American business entities.
If you are a Dutch company planning to do business in the United States, you will want to protect yourself against claims and liabilities. Establishing a Export Ltd/BV/GMBH in your home country or a Blocker Entity allows you to create an international structure. This also adds an extra layer of security. Always consult your accountant for advice on the best choice for your specific situation.
An American Inc is a legal form for businesses in the United States, with "Inc" standing for Incorporated. It is comparable to the Dutch B.V. or German GMBH or English Ltd. This business structure is particularly attractive for companies because it legally separates the business from its owners, providing protection from personal liability.
Establishing an Inc in the U.S. also facilitates easier entry for Dutch companies into the American market. Additionally, the U.S. market offers access to extensive business networks, innovation hubs, and resources that can contribute to a company's growth and development.
However, it's important to consider the potential drawbacks and obligations of an American Inc. This includes compliance with U.S. regulations and taxes. Want to know more? Read further below, or schedule a video call with one of our America experts.
Limited Liability Protection: As with LLCs, one of the most significant benefits of forming an Inc is limited liability protection. This means that shareholders are not personally liable for the company's debts and liabilities, safeguarding personal assets from business-related risks.
Easier Access to Capital: An Inc can more readily attract investors because it can issue shares of stock. This makes it easier to raise capital compared to some other business structures, enabling more substantial growth and expansion opportunities.
Perpetual Existence: Unlike sole proprietorships, corporations have perpetual existence. This means the corporation continues to exist even if the original owners sell their shares or leave the company, providing stability and longevity for ongoing business operations.
Attracting Talent: Being incorporated can help attract top talent by offering stock options and shares as part of employment packages, creating a valuable incentive for highly skilled workers to join and remain with the company.
We would be happy to discuss your options. Our expertise is at your disposal to provide personalized advice. Feel free to contact us. You can reach us via phone or email, and scheduling a video meeting is also an option. We're always ready for a discussion or to offer advice!
An American LLC, or Limited Liability Company, is a legal structure that combines features of both a corporation and a partnership. An LLC is attractive as a business structure because it offers limited liability to the owners (members) of the company, protecting personal assets from business debts and claims. Additionally, establishing and managing an LLC is generally simpler and less bureaucratic than forming an Inc.
When considering the disadvantages of an LLC, it's important to note the significant variation in laws and regulations from state to state. This can add complexity for companies operating in multiple states or planning to expand. Furthermore, the LLC structure may be less familiar or recognized outside the United States, potentially complicating international business relationships or the attraction of foreign investors.
Want to know more? Read further below, or schedule a video call with one of our America experts.
Limited Liability: Like an Inc, the owners (members) of an LLC are typically not personally liable for the company's debts and obligations, meaning their personal assets are usually protected.
Flexible Tax Structure: An LLC offers flexibility in tax treatment. It can be taxed as a sole proprietorship, partnership, S Corporation, or C Corporation, depending on the choice of the members and tax regulations. This flexibility allows for optimization of tax obligations.
Simple Structure: Compared to an Inc, establishing and managing an LLC is generally simpler and less bureaucratic. There are fewer formal requirements, such as shareholder meetings or board of directors meetings.
Flexible Ownership: An LLC can have an unlimited number of members, including other businesses and foreign entities. This provides flexibility in ownership structure and investment opportunities.
Operating Agreement: LLCs typically have an operating agreement that outlines the rights and responsibilities of the members and the management of the company. This document is flexible and can be tailored to the specific needs of the members.
Profit Distribution: The profits and losses of an LLC can be distributed flexibly among the members, regardless of their ownership interest. This can be beneficial for tax planning and profit-sharing.
Continuity: An LLC can continue by the decision of the remaining members even if a member withdraws or passes away, depending on the provisions in the operating agreement.
We would be happy to discuss your options. Our expertise is at your disposal to provide personalized advice. Feel free to contact us via phone or email, and scheduling a video meeting is also an option. We're always ready for a conversation or to offer guidance!
Corporation (INC) | Limited Liability Company (LLC) | |
| Liability | In a corporation (Inc), shareholders are completely shielded from liability as long as the company complies with regulations. Breaking the law is punishable in any country. | An LLC has members who are insulated unless they also manage the business. There are procedures you must follow to separate personal and business matters. |
| Taxation | Businesses with either a U.S. resident or non-resident owner pay the same tax rate. Note that companies with foreign owners must submit additional information with their tax returns. | LLCs are typically tax-transparent, which can be an issue for non-U.S. (non-resident-owned) business owners. An LLC can choose to be taxed as a corporation, but if that’s the plan, forming an Inc might be simpler. If the business is not used to conduct operations in the U.S., an LLC is sometimes the better type of entity. |
| Tax_Treaty | Tax treaties are usually designed with corporations in mind, which is why many U.S. entities are “corporations” in foreign ownership, colloquially known as a C-Corp or Inc. | The treatment of distributions from LLCs to foreign owners can be unclear, so proceed cautiously when doing business in the U.S. with an LLC. |
| Structure | In a corporation, shareholders are the owners. They elect directors, who manage the company’s governance, strategies, and goals, as well as reviewing business activities and progress. Directors appoint officers who run the company’s day-to-day operations. Only officers, for example, can sign contracts on behalf of the Inc. | Members own and collectively control an LLC. They create an Operating Agreement, which can be as detailed or concise as desired, establishing all company rules. Members can appoint managers to oversee daily operations. When there are many members, appointing managers is advisable to guide the LLC’s structure (and expenditures). |
Foreign companies often choose the wrong legal entity when setting up their business structure without the advice and guidance of an international business attorney. The Limited Liability Company (LLC) is the most popular legal entity for businesses in the United States because profits and losses flow directly to the owner, avoiding double taxation, and due to the general flexibility of an LLC. However, nearly all online examples and forums assume LLCs are formed by U.S. citizens, green card holders, or individuals with specific visas. Different rules apply for different international owners.
Unfortunately, LLCs are typically not the best vehicle for initial entry into the U.S. (with rare exceptions). A single-member LLC not only faces U.S. income tax obligations but also requires accountability for the branch's profit tax. Moreover, an LLC mandates that the foreign parent company prepare a U.S. tax return, thereby shifting the risk of U.S. liability for any deliberate or inadvertent errors to the foreign parent company.
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It's not exactly the same, but an Inc. is somewhat like a European limited entity.
Of course, we are happy to create a customized quote for your business in America.
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