Do you want to know which company is better? would you like to see the definitive comparison between US LLC vs UK LLP?
Hello, everyone! In our previous blogs, we discussed how LLCs work in the USA, their tax benefits, operational aspects, and common mistakes to avoid. Today, we will compare LLCs in the USA with LLPs in the UK. Since both structures offer 0% tax rates, it’s natural to have questions about which one is the better choice for your specific case. By comparing the structures, registration processes, liability protection, management, taxation, accounting, and privacy aspects, you’ll be able to make an informed decision. So, let’s dive in!
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Structure
US LLC
Limited Liability Company meaning (LLC) is a hybrid formation that combines elements of corporations and partnerships. You have the flexibility to be the sole owner or have co-owners. Operating as a single-member LLC can simplify your accounting duties.
UK LLP
A Limited Liability Partnership (LLP) requires at least two partners. While you can add others, if you plan to run the business alone, you would need to include another legal entity as a partner. This way, you can own the majority of the business, and all the assets will remain with you.
Registration
US LLC: Registering an LLC is a relatively straightforward process. There are ordinary and express registration procedures, with the latter being faster but incurring an additional fee. Generally, it takes around 3 weeks for a standard registration and 3 days for an express registration. After registration, you can apply for an EIN (Employer Identification Number) for tax purposes. The application is usually reviewed within 10 to 15 days. Once approved, you can open a bank account and start operating your LLC. Do you want us to do it for you? Here is our link
UK LLP: Registering a UK LLP is also uncomplicated. The process is even faster than registering a US LLC. You can choose same-day registration with the express procedure or within a couple of days without any additional payment.
Liability Protection
Both US LLCs and UK LLPs provide personal asset protection against claims from third parties. In this aspect, there are no significant differences between the two structures.
Management of the Company
US LLC: The management structure of an LLC is flexible. The owner(s), known as member(s), can participate in the company’s management directly. Alternatively, owners can appoint someone else as the manager.
UK LLP: All LLPs must have at least two designated partners. If you form an LLP with only one other person, it will be considered designated without any additional appointment. With three partners, you can choose designated and non-designated partners. However, with two partners, one partner will automatically be designated.
Taxation
US LLC: Taxation is a crucial consideration. When operated correctly without employees, etc., a foreign-owned US LLC can enjoy a 0% tax rate in the USA. The company’s assets will be taxed at the personal level of the members in their respective countries of residence.
UK LLP: Similar to LLCs, UK LLPs do not pay taxes in the UK as a company. However, partners are taxed personally based on their countries of tax residency.
Accounting and Audit
US LLC: A single-member LLC is not required to submit formal accounting reports. It is recommended to maintain proper accounting records, mainly for tax purposes. For multi-member LLCs, accounting can be more complex, involving profit and loss tracking. While hiring an accountant is not mandatory, various online resources can assist you. Auditing is not necessary for LLCs, regardless of turnover.
UK LLP: All companies, including LLPs, must submit annual accounting reports in the UK. Accounting requirements are generally more complicated than in the US. If you lack a financial background, professional help may be required. Depending on the turnover, the company may also need to undergo auditing, which increases maintenance costs.
Privacy
US LLC: Privacy regulations vary depending on the state where the LLC is registered. Some states provide limited protection, allowing public access to certain information. However, other states prioritize privacy and do not disclose member or owner details. While the state may not know the owner’s identity, the IRS retains this information. So, on a federal level, the owner’s information is confidential. For example, if you wanted to find out the owner of a company named ABS LLC registered in Delaware, you would not be able to retrieve that information.
UK LLP: In the UK, the situation is different. The government’s official website, “find-and-update.company-information.service.gov.uk,” discloses information on companies as required by law. You can search for any company and find details about its ownership and registered address. Privacy is not as protected as with US LLCs.
Conclusion
To summarise, both US LLC vs UK LLP can potentially benefit from a 0% tax rate. However, there are important distinctions. LLCs are costlier to set up but offer easier and potentially cheaper maintenance. They also provide higher privacy. On the other hand, LLPs have all their information publicly disclosed, offering less privacy. Each structure has its pros and cons, and the ideal choice depends on individual circumstances.
Thank you for reading! Stay tuned for more valuable content on legal tax-saving strategies!
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do you want to see the video where we explain everything in detail? you have it here
FAQ Section
1. Which company structure is better for non-US residents? The choice between a UK LLP and a US LLC depends on various factors such as your business goals, desired level of liability protection, and tax implications. It is recommended to consult with professionals well-versed in international taxation to determine the most suitable option for non-US residents.
2. Do both US LLC vs UK LLP offer limited liability protection? Yes, both the UK LLP and US LLC offer limited liability protection to their owners, safeguarding personal assets from business liabilities. However, the extent and application of this protection may vary based on the jurisdiction and specific circumstances.
3. How are US LLC vs UK LLP taxed? UK LLPs and US LLCs have different tax frameworks. UK LLPs are typically taxed as partnerships, where the profits pass through to individual partners. US LLCs, by default, are treated as pass-through entities for tax purposes, with profits and losses flowing through to the individual members’ tax returns. However, it’s essential to consult with tax professionals to fully understand the tax implications based on your specific situation.
4. What are the formation requirements for US LLC vs UK LLP? Forming a UK LLP involves registering with Companies House and complying with certain filing requirements. On the other hand, setting up a US LLC generally requires filing the necessary formation documents with the relevant state authorities. Detailed guidance from legal professionals will ensure compliance with the specific requirements in each jurisdiction.
5. What is the meaning of limited liability protection? The Limited Liability Company meaning is a hybrid formation that combines elements of corporations and partnerships. You have the flexibility to be the sole owner or have co-owners. Operating as a single-member LLC can simplify your accounting duties.
