Registering a Limited Liability Company (LLC) in the US, UK, and Australia 

Introduction

Many entrepreneurs face difficulties in choosing the right business structure for their companies. Depending upon the goal and feasibility of the business, owners or entrepreneurs form a sole proprietorship, while others choose more complex structures, such as a Corporation. In initiating or establishing a corporate entity, one must know all the factors considered/required to be in sync with legal obligations.  

Different structures and types of companies can positively or negatively impact the structure and daily business. There are many possible entities in the legal system of various countries, and all these laws and regulations change with jurisdiction. Likewise, LLC is one of the most prevalent types of business structure as it provides flexibility in terms of taxation and management. As a legal entity separate from its management and members, the business is managed independently, among many other advantages and disadvantages. 

Setting up a Limited Liability Company (LLC) properly is one of the most critical steps in establishing your business. Many new business owners/entrepreneurs decide between LLC or a Corporation. This choice will impact how your company is running, how the profits are shared, how you pay taxes, and so much more. Let’s dive into the basis of what LLC is to an in-depth guide on establishing an LLC in the UK, USA, and Australia. 

What is an LLC? 

A Limited Liability Company (LLC for short) is a Private Limited Company in the United States of America. This type of business form combines Limited Liability with the pass-through taxation of a Corporation with the pass-through taxation of a Partnership or Sole Proprietorship. 

According to State Law, an LLC is not a Corporation; instead, it is a firm that offers its owners limited liability in many jurisdictions. Depending on the number of owners, it is a hybrid legal entity with elements of a Corporation, Partnership, or Sole Proprietorship. An LLC is a type of company entity that can be more adaptable than a Corporation and is sometimes a good choice for businesses with a single owner.  

Owners of an LLC business are usually known as Members. Most States have no restriction on Ownership, this is the reason Members usually tend to include individuals, Corporations, other LLCs, and other foreign entities and enterprises. However, there is no bar set for the maximum number of Members. In the majority of cases, most of the States permit “single-member” LLCs, i.e. having only one Owner. This sole membership LLC works as the best solution for small businesses and enterprises with minimum Capital and investments.

Factors to consider when choosing a location for registering a limited liability company

1. Initial Capital: It is one of the major and fundamental factors required for establishing an LLC because a straight answer cannot be given in this scenario. Everything depends upon the State where the LLC is to be formed, the nature and size of the business, and the tax option chosen by the LLC. There is no minimum capital clause requirement in the initial stage for forming an LLC at the federal level, but the same cannot be said in the case of each State where they have its own specific rules and regulations regarding fees and registration of an LLC which can vary from $ 50-$ 500 or sometimes more. 

2. Documentation and the legal environment: LLC has less paperwork compared to other corporate entities while adjusting, but still there are plenty of compliances required such as an article of organization, operating agreement, Employer identification number, licenses, and permits. These kinds of compliances may vary with different names in different State Agencies. 

3. Infrastructure: Infrastructure is important for all types of entities and LLC is also one of them. Infrastructure affects a business’s productivity, efficiency, performance, and competitiveness as infrastructure are what helps deliver the product, and services to its customer faster, cheaper, and better, communicate and collaborate with its partners, suppliers, and stakeholders more effectively, and operational costs and risks by improving the reliability, security, and resilience. 

4. Market potential: Market potential is an area where a plethora of research is required, as it is a fundamental and primary scope of growth for an LLC or any corporate entity to know its correct market. Incorporating an LLC in a state, in the scope of less tax liability, while the same state doesn’t have enough market potential and demand then no such growth or profit can be acquired. 

5. Accessibility: Accessibility is one of the major causes for deciding the location of an LLC. If the location is in a popular area of the city, this will ultimately result in more sales and financial growth. It is necessary to calculate the local transport routes and distance, particularly of all the highways and motorways. This will decide the price of the finished product. However, selecting a location in a posh and commercial area will lead to increased property rents and purchase prices, along with a high margin of profits and low transportation costs. It is equally important to consider the employees during recruitment as most of the employees prefer locations with good public transportation and easy accessibility. 

6. Security: This is interlinked with the above-mentioned factor, i.e., Accessibility. More often than not, the location of any entity, Corporation, enterprise, or LLC depends upon where it is located. In simpler words, whether it is situated in a commercial place or in some remote area of the city. This plays a major role in the commission of crimes. LLCs or businesses located in prime locations are often guarded by the best security solutions. One can check this factor by calculating the theft insurance plans before setting up an LLC. The crime statistics of all three countries, i.e., the USA, UK, and Australia will help set up an LLC in an appropriate location.

7. Competition: Often, business owners tend to look for a place where their business is not affected due to any competitive businesses of similar nature or type. This also will help them to decide the price of their individual product units. However, if there are a handful of very few competitors, it can be a sign of a healthy business due to the potential check on prices. Otherwise, the owner will increase the price and tend to have a monopoly over his products which will ultimately be detrimental to his demand and sales. This factor of setting up the LLC in a competitive area will also help to promote innovation and creativity to the business owners, ultimately benefitting the buyers and customers.

8. Business Rates: Cash flow is the ultimate and the king of all factors when deciding the location of an LLC. It will determine whether the entity will be able to survive in the long run and become a successful organization or not. It is important to calculate the average rates of business which include rent on the property, utility bills, taxes, etc in the concerned area in order to determine the affordability and cost-effectiveness. 

Types of limited liability companies (LLC) in the US

Limited Liability Companies (LLCs) are established in accordance with state regulations, resulting in varying rules across states. Some states might prohibit specific LLC types while still allowing them to function within their jurisdiction. The purposes of LLCs encompass a wide range, including providing professional services such as healthcare or legal counsel and capitalizing on interstate commerce regulations.

Single-member LLCs vs. Multi-member LLCs

Single-member LLCs (SMLLC) are owned by one member and are also called a “disregarded entity” by the IRS since it is similar to sole proprietorships for tax purposes. On the other hand, Multi-Member LLCs (MMLLC) is similar to a partnership as it has multiple owners who share profits and losses based on their ownership stakes.

For tax purposes, SMLLCs and MMLLCs are treated as similar, with a slight difference being that in an SMLLC, the owner will take all of the profits and losses, while in MMLLC, members split the profits and losses as per their ownership share.

Member-managed LLC or Manager-managed LLC

In a member-managed LLC, daily operational decisions are collectively made by the members. In contrast, a manager-managed LLC designates external individuals, entities, or a specific subset of members to assume managerial roles, often like investors.

Series LLC

Series LLCs comprise a parent LLC overseeing several subsidiaries. This structure safeguards assets and limits liability across various business ventures without initiating new LLCs for each endeavour. As of 2023, approximately 19 states, including Delaware, Nevada, Iowa, Illinois, Tennessee, Oklahoma, Utah, and Texas, recognize Series LLCs.

Restricted LLCs

Nevada introduces Restricted LLCs, featuring a 10-year waiting period after formation before LLC members can access business distributions. This category is primarily employed for asset transfers.

Professional LLC (PLLC)

Professional LLCs (PLLCs) are established in 29 states, permitting licensed professionals like physicians, attorneys, chiropractors, and engineers to form LLCs. Some states mandate that every PLLC member hold a license in the same profession if the company intends to provide related services.

L3C Company

Low-profit LLCs (L3Cs) serve purposes beyond profit generation, similar to nonprofit LLCs. However, L3Cs have the flexibility to generate profits and distribute them among members. They offer tax advantages while embodying the characteristics of not-for-profit institutions, often incorporating strategies associated with social enterprises.

Nonprofit LLC

This category is structured for a purpose other than making money, i.e. social, charitable or educational. This structure is officially recognized in five states: Minnesota, Alabama, Tennessee, Kentucky, and North Dakota.

Anonymous LLC

Anonymous LLCs, a unique concept available in Delaware, New Mexico, and Wyoming, maintain the confidentiality of ownership details. Unlike other types of LLCs, the names and contact information of LLC members are not publicly disclosed.

Domestic LLC

The term “Domestic LLC” refers to the most common type of LLC, one that is created and operates within the same state.

Foreign LLC

To conduct business in multiple states, business owners can establish a domestic LLC in one state and register it as a “foreign LLC” in other states, indicating its origin in a different state for legal and operational purposes. 

Steps for registering a limited liability company in the US

The business landscape in the US is unpredictable. Government rules, new market trends, and contemporary technologies significantly influence how a business is conducted in the USA. New business structures have occasionally appeared due to the evolving market conditions as time passed. Let’s discuss one of these company structures in this post, the Limited Liability Company (LLC) in the USA, which has developed into one of the most popular business structures in the US.

Registering a Limited Liability Company (LLC) in the United States involves several steps. While starting an LLC seems difficult at first, only 8 simple steps are involved. 

Select a state

• Choosing a State is the first step in establishing an LLC in the US. Starting an LLC in a State without State taxes is advised so that only US Federal taxes need to be taken care of. 

• But, if the company’s goal requires you to have locations or a physical presence in a particular State, you must have an LLC registered solely in that State. 

• By doing this, you do not have to incorporate an LLC as a foreign LLC or appoint registered representatives in numerous States which will ultimately save a lot. 

Name your LLC

• Reserving a name for your Limited Liability Corporation is the next step in creating an LLC in the USA. 

• You must check your Secretary of State’s Business Directory before reserving a name for your LLC to ensure it is unique and not already being used by another Company. In the State where you are filing, your LLC cannot share the same name as another LLC that is already in existence. 

• You must choose a Designator to add to your business name in most States to indicate that it is an LLC in addition to naming your new Company. The conventional way to demonstrate this is by appending “LLC” or “Limited Company” to the end of the name of your Company. 

Assign a registered agent

• The third stage in forming an LLC in the USA is to appoint a Registered Agent, who will receive and handle legal and tax-related paperwork. 

• A Registered Agent is a person or Company that receives legal documents for your LLC. 

Due to the level of expertise required and the responsibilities to handle state-specific laws, it is important that an Attorney shall be hired as an Authorized agent and assist you in establishing a good standing as you register your LLC. 

File the certificate of incorporation of an LLC with the division of corporations of the State

• The Certificate of Incorporation for an LLC would next be submitted to the State’s Division of Corporations. This Certificate may be submitted online or by email by the individual filing it.

• The LLC is regarded as being formally formed after the Certificate of Incorporation of an LL is submitted and approved by the USA Division of Corporations.

File the articles of organisation

• The Articles of Organization is a legal document establishing one’s LLC as a business entity. Before filing his Articles of Incorporation to the State, he shall carefully review them. 

• He can file this document with his Secretary of State’s office. Also, there is a filing cost that he must pay, which varies according to the State in which he has  incorporated his firm. 

• Once the State approves his formation documents, he’ll receive a Certificate from the State proving his LLC is legitimately registered. He can then use it for additional duties like opening a business bank account and obtaining a tax ID number. 

• Basic information he’ll need to provide includes the LLC name, the address of the place of business, the purpose of the business, the way the LLC will be managed, contact information for the Registered Agent (and in some States, the Agent’s signature which can be in the form of electronic signature) and the duration of the LLC.

Create an Operating Agreement

• An operating agreement outlines the management, legal, and financial rights of each LLC member. More specifically, it can specify who contributes capital to the business, how members leave the LLC, and how profits will be allocated. Essentially, it must include all pertinent details about how your LLC operates.

• While not required by law, it is recommended to draft an Operating Agreement. 

• One such Agreement should be made for LLCs with more than one member or partner to make sure that everyone understands their obligations. Even one-person businesses gain from putting the specifics in writing.

• The Agreement usually defines the specific responsibilities of each individual in the LLC along with compensation, equity, etc. 

• The Members are free to add specific terms according to their business needs.   

Get an LLC Employer Identification Number (EIN)

• Employer Identification Number, or EIN, is a nine-digit number assigned by the Internal Revenue Service.  

• A business bank account must be opened, federal and state taxes must be filed and managed, and an EIN must be provided when employing personnel.

• It is used to identify your business for tax purposes.

• The federal Employer Identification Number (EIN) segregates the business identity and the personal identity of the Owner. It usually acts as a Social Security Number (SSN) for the LLC business. In simple words, it is a numerical identification of an LLC much like a contact number is for an individual. This unique identification is used by the Government to identify an LLC. Along with the EIN, one also has to include his income tax, sales tax, use tax, value-added tax (VAT), and other important tariffs while filling in the necessary details and details of his LLC. 

Obtain Business Licenses and Permits

• Depending on your industry and location, you may need to obtain specific permits and licenses to operate your business legally.

• Along with the paperwork required to form your LLC, you’ll probably need to fill out applications and pay fees for company licenses and permits. The list of business forms and fee schedules can probably be found at the same office or on the official website. 

• Verify the kinds of licenses and payments your company requires to function legally in your state. 

• You’ll need to apply to renew your license or permit regularly, so be aware of critical deadlines. Your LLC’s ability to operate legally may be revoked if renewal obligations do not follow through.

Open a bank account for your LLC

• In order to keep personal and business-related finances separate, one shall open a bank account after setting up his LLC.

• It will also help him during annual calculations for various tax-related concerns.

• It will nonetheless provide more protection to his personal assets.

• The requirements for opening an LLC bank account are business-related information, including EIN.

Create and launch a website for the LLC

• One can really benefit from his offline business even if it’s a new one. The simplest way today to reach the maximum number of consumers or customers in the minimum possible time is by having a personalized business website of the LLC.

• Things like promotions, offers, etc. attract and gain the attention of a large number of consumers and make the newly-formed LLC popular among people. 

• It will also help in making investments in small business loans for consistent growth of the concerned LLC.

Forming an LLCs for non-US Citizens

Forming an LLC in the US for non-US citizens involves several key steps. Initially, it closely resembles the process for US citizens, but there are additional considerations for non-citizens. The steps include; –

• Start the LLC Formation: Begin by hiring a registered agent, drafting an operating agreement, and selecting a state and name for your LLC. However, the pivotal moment in creating your LLC is filing the articles of organization with state authorities.

• EIN Application: Acquiring an Employer Identification Number (EIN) is crucial, as it is your business’s equivalent of a Social Security number. While citizens can easily obtain an EIN online, non-citizens without a taxpayer identification number need to apply via phone (if abroad) or by mailing or faxing an IRS Form SS-4 with essential business details.

• Secure a US Mailing Address: Although not mandatory, having a physical US mailing address can be beneficial, especially for banking and credibility purposes. US residents can use their home address, while non-residents often opt for a registered agent’s address to receive official documents.

• Open a US Bank Account: You’ll need to wait until you have your EIN before attempting to open a US bank account for your LLC. Most banks prefer in-person account setup, so prepare to visit the US if necessary. The requirements typically include your passport, home country ID, Articles of Organization, LLC Operating Agreement, EIN, and proof of your US address.

• Tax Considerations for Non-US Citizens: The IRS will expect tax filings from your LLC if it operates within the US. For single-member LLCs, resident aliens file IRS Form 1040, while non-resident aliens use Form 1040NR. Additionally, non-resident aliens may need to file Forms 5472 and 1120, even if the LLC generates no income.

• Multi-Member LLC Taxation: If your LLC has multiple members, it’s usually treated as a partnership for tax purposes. This requires filing Form 1065, along with Schedule K-1 for each partner. Form 5472 or 1120 is typically necessary for multi-member LLCs with foreign members under partnership taxation.

Pros and cons of registering an limited liability company in the US

There are roughly 21.6 million LLCs in the United States compared to approximately 1.7 million traditional C-Corporations and approximately 23 million Sole Proprietorships. The statistics indicate that LLCs are more common than other Corporations. Registering a Limited Liability Company (LLC) in the United States can offer several benefits, including

Pros of registering an limited liability company in the US

Limited personal liability: LLC owners or members enjoy limited personal liability for the debts and obligations of the business. This means that their personal assets are protected from lawsuits, debts, or judgments against the company.

Flexible management structure: LLCs are not required to have a specific management structure, and owners can choose to manage the company themselves or hire managers to run the business.

There is no cap on the number of members, who may be individuals, Partnerships, Trusts, or Companies. A limit is set on the number of shareholders allowed for S-Corporations that have chosen to be taxed as pass-through entities under Subchapter S of the Internal Tax Code.

Pass-through taxation: Taxes at the level of the company entity are often not paid by LLCs. Owners are “passed through” any corporate revenue or loss, which they then record on their personal income tax returns. Tax obligations are settled individually at a later stage. 

As a result of being subject to IRC Subchapter C taxation, Corporations that are unable or unwilling to qualify as S-Corporations are taxed at the business entity level, and the revenue delivered to their shareholders is subject to taxation.

Easy formation: LLCs are relatively easy to form than any form of business organisation and require less paperwork and formalities than other business entities, such as Corporations. LLCs have fewer continuing compliance responsibilities than Corporations, General Partnerships, and Sole Proprietorships (whether taxed as S-Corporations or C-Corporations).

Credibility: Registering a limited liability company can lend credibility to one’s business, making it appear more professional and established to customers, clients, and investors.

Transferability: Ownership in an LLC is generally easier to transfer than ownership in a Corporation. This means that if an owner wishes to sell his ownership interest in the company, it can typically be done with fewer restrictions and requirements.

Privacy: LLCs generally offer greater privacy for their owners, as they are not required to disclose their personal information, such as their names and addresses, on public records.

It’s worth noting that the specific benefits of registering a limited liability company may vary depending on the State in which the company is registered and the nature of the business. It’s important to consult with a qualified Attorney or Accountant to determine the best legal structure for one’s business.

Cons of registering a limited liability company in the US

There are a few disadvantages to creating an LLC, although the advantages outweigh the drawbacks in many cases.

Cost: In comparison to a Sole Proprietorship or General Partnership, an LLC typically costs more to establish and manage. States impose a fee at initial formation. Many States also charge recurring costs, such as franchise tax or annual report fees. One has to consult the Secretary of State’s office in his State.

Transferable ownership: Compared to a Corporation, an LLC’s ownership is frequently more difficult to transfer. In the case of Corporations, the Corporation may sell shares of stock to increase ownership, and, barring a shareholder agreement to the contrary, the shareholders may sell their shares to a third party. 

In most LLCs, all members must agree to the addition of new members or changes to the ownership interests of current members unless the members agree differently.

Tax Liabilities: LLCs have some tax advantages over Corporations, but there can also be more complexities when it comes to taxes depending upon the structure and classification; the number of partners, and the type of business there can be multiple filings required under tax implications which can be difficult to navigate.

LLCs that are taxed as Corporations have to deal with double taxation which means there are two tax liabilities one at the entity level and then again at the individual level and distributed as dividends to the members, which reduces the net income available for reinvestment or distribution.

Thus, it is important to take into consideration all the pros and cons before setting up an LLC. As every coin has two sides, similarly every business entity, Corporation, or LLC has some advantages and disadvantages, so it completely depends on the individual or group of persons whether they wish to set up an LLC according to their requirements, Capital, and other resources.   

Registering a limited liability company in the UK

Registering a limited liability company in the UK is a comparatively easy process. An LLC in the UK is registered with the Companies House and recorded in the UK government’s official register of companies. The registration process is straightforward and it involves several steps. Several new formalities and requirements apply to maintain proper records of the LLC with regard to decisions of Members, business transactions, and meetings. There are three key aspects of an LLC. They are: 

• Documentation and holding of meetings of Directors and Members from time to time.
• Documentation of Directors’ actions and Members’ without meetings.
• Approval of ongoing decisions related to legal, tax, and business. 

Steps to register a limited liability company in the UK

An LLC in the UK registered with Companies House, the UK government’s official register of companies. Registration can be completed online or by post, and it involves several steps that need to be completed in a specific order. Following these steps will ensure that the registration process runs smoothly and the LLC is legally established. 

These steps include: 

Choosing a business name

The name of one’s Company is an essential element that requires careful consideration. It should be unique and accurately convey the core of his business. Some of the acceptable variations for the name of a Limited Liability Company (LLC) in the UK include; -LLC, LLC, LC, LC, Limited Liability Company, Limited Company, and Ltd. Liability Co. 

Once he has selected an appropriate name, it is necessary to obtain a virtual address that will serve as the registered office for his company in the UK. There are, therefore, factors that may guide in choosing an appropriate name, including; –

• Words pertinent to the products or services with which he deals, but he shall avoid using vocabulary associated with government organizations.

• He shall incorporate the term ‘Limited Liability Company’ or ‘LLC’ into the business name.

• If applicable, he may want to consider creating an acronym for his business name.

• It is also important to consider readability, especially when using a different language as his name.

Check the legal requirements for company names in the UK

To minimize the likelihood of one’s company formation application being rejected by Companies House and avoid disappointment, it is recommended that one makes sure that the name he chooses is suitable for his specific business and conforms to the regulations and guidelines outlined in the following legislations: 

Companies Act 2006; Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015 (SI 2015/17); and Company, Limited Liability Partnership and Business (Sensitive Words and Expressions) Regulations 2014 (SI 2014/3140). 

However, these legislations provide certain limitations that may impact his choice of name. Some of the limitations are as follows: 

• The proposed name should not be identical to an existing name listed in the index.

• His proposed LLC name should not contain words or expressions deemed sensitive as defined in the relevant regulations.

• The name should not be offensive or include words that would constitute an offense.

• The regulations also prohibit certain characters, punctuation marks, signs, or symbols from being included in a name.

• The proposed name should not suggest or give the impression of a relationship with the UK government, a devolved administration, a local authority, or a particular public authority.

Check if the company name is available to register

Before submitting the Company formation application to Companies House, one needs to check if his preferred company name is available for Registration is possible. He can check if his LLC name is available to register in the UK using the Companies House website. However, it is important to note that the name availability check does not guarantee that his LLC name will be accepted for registration. The Companies House may still reject his name if it does not meet the necessary criteria.

Register an official address

After selecting a Company name, he must have a UK address for its registered office to register his Company in the UK. The address will be publicly available on the online register and used by the Companies House and HMRC to send official notices to the company. As such, it should appear on all Company-related documents. In addition, there are requirements that the address must meet, including that, it must be a physical location within the UK or in the same country where the Company is registered.

Register with companies house

When registering a limited liability company, it is necessary to generate a user ID and password for the Government Gateway specifically for one’s Company. His personal Government Gateway ID cannot be utilized for this purpose. Registration can be done online, by post, using an agent, or by a third-party software provider.

He will then be required to submit Memorandum of Association documents online. These documents should include details such as the names of the Company, its Officers and Directors, and individuals who have significant control over the Company. Furthermore, he must provide information about the share capital, including how it is divided among shareholders, and the trading activities of the Company. 

After registering a limited liability company, you will receive a Certificate of Incorporation from Companies House. This document confirms that the Company has been legally incorporated and is registered with Companies House. It also displays the Company number and the date of formation.

Check the documents required for registering a limited liability company in the UK

During the registration process, one must submit registration documents for his LLC to Companies House. These documents will include:-

1. Memorandum of association: This document is signed by all parties forming the Company, and it contains the names of the Company’s Officers, Directors, and people who have significant control over the Company. It also includes the amount of share capital and how it is divided between shareholders.

2. Articles of association: This document outlines the Company’s internal rules and regulations, such as the responsibilities and powers of Directors, shareholder rights, and rules for conducting Company meetings.

3. Form IN01: This document contains basic information about the Company, such as the Company name, registered address, details of Company Officers and shareholders, and the type of business the company will engage in.

Creating a memorandum and articles of association

The Memorandum of Association (MoA) is a legal document that defines a Company’s relationship with shareholders and specifies the objectives for which the Company has been formed. It is a foundation upon which the Company is established, and the Company can undertake only those activities mentioned in the MoA. The MoA lays down the boundary beyond which the Company’s actions cannot go, and any actions beyond the boundary of the MoA will be considered void. It is a public document, and any person can get it by paying the prescribed fees to the Registrar of Companies. 

Calculating the cost and time frame to register an LLC in the UK

The cost of registering a limited liability company in the UK can vary depending on several factors, such as the registration method, the type of company being registered, and the level of professional advice required. Generally, if one registers individually, the basic cost of registering a company with Companies House, which is the UK government’s official register of Companies, is currently £12 if he registers online (which can be done within 24 hours) or £40 if it is registered by post. 

The cost of £40 by post can take up to 8-10-day turnaround. However, the same can cost up to £100 if he wants same-day service. If he ever needs to re-register his Company, he can do this by post for a fee of £20 or £50 for the same-day service.

Pros and cons of registering a limited liability company in the UK

Registering a Limited Liability Company (LLC) in the UK have both advantages and disadvantages. For example, on one hand, an LLC provides limited liability protection to its owners, enabling them to separate personal assets from business liabilities; while on the other hand, setting up and maintaining an LLC involves certain costs and administrative tasks that may prove to be a burden for some businesses. In this context, it’s essential to weigh the pros and cons of forming an LLC in the UK to determine if it’s the right choice for your business. Some of these pros and cons include: 

Pros of registering a limited liability company in the UK

LLC offers limited liability protection: The owners of an LLC in the UK have limited liability protection since the owners’ liabilities are limited to the Company only. This means that their personal assets are protected in case of business debts or legal liabilities. Therefore, if the company fails, the owners are not at risk of going bankrupt at a personal level.

Tax benefits: An LLC in the UK may be eligible for tax benefits, such as lower corporate tax rates and deductions for certain expenses. This means they can benefit from lower Corporation tax rates on profits than the higher income tax rates paid by sole traders. Consequently, this will significantly reduce the tax burden for the company and its owner.

An LLC is often perceived as a more professional and credible organization: This can be essential if the business primarily serves other businesses or government organizations. An LLC can potentially have access to funding from investors or lenders due to its recognized business structure and limited liability protection.

Protection of one’s business name: By registering a limited liability company, one gain’s the benefit of officially registering his business name with Companies House, and this prevents others from using it. Therefore, any attempt by third parties to use one’s business name or a similar name will be rejected. 

Credibility: A UK LLC can add credibility to a business, as it is a recognized business structure in the UK and is often viewed as more professional than other business structures. It also helps pay employees via pay salaries through the Pay As You Earn (PAYE) scheme as a form of compliance with the legal requirements for paying taxes and National Insurance contributions for your employees.

Cons of registering a limited liability company in the UK

An LLC can be costly: Registering a limited liability company in the UK can be expensive due to various associated costs. For example, legal and accounting fees are involved in setting up an LLC, fees associated with the registration process, and ongoing costs such as annual filing fees and taxes.

Legal obligations: With an LLC, one will have several legal obligations, such as keeping accurate records and complying with Employment Laws. Failure to comply with these obligations can result in fines or legal action.

More paperwork and documentation: While much of the initial paperwork pertains to establishing and administering an LLC, one will also have to submit additional documents and comply with further legal obligations throughout the year.

Limited scope of activities: An LLC may be limited in terms of the scope of activities it can engage in, as some business activities may require a different legal structure, such as a Partnership or a Corporation.

Complexity: The process of registering a limited liability company can be complex because many legal and administrative requirements must be met, such as filing annual accounts and tax returns. Due to the added legal responsibilities and administrative tasks, altering your company structure becomes a more challenging process.

Registering a limited liability company in Australia

Registering a limited liability company in Australia is necessary if one has decided the structure for his Company that is right for his business. Here, a Company means an entity that has legal obligations of its own. This is one of the most widely adopted business structures in Australia and has seen an exponential rise over the years.

If you are starting a new business, you first need to manage the legal processes of a startup, along with being aware of the legal matters and legal contracts necessary. It is a separate legal entity distinguished from the Owner. It is a juristic person. In order to do such registration, one has to consider and calculate various legal, financial, and record-keeping responsibilities of his LLC. There are certain steps to perform the registration process which are as follows:-

Steps to register an LLC in Australia

A Proprietary Limited Company is the closest form of LLC found in Australia. This is one of the most widely adopted business structures in Australia and has seen an exponential rise over the years. The incorporation of such a type of Company requires the existence of at least one resident director. In addition, the company cannot have more than 50 shareholders.

These Companies can start with an initial capital of $1 or be 100% foreign-owned entities. They are expected to register for the Goods and Services Tax, only if the annual turnover of the company has managed to cross AUD 75,000. Further, they are expected to add “Pty Ltd” and their company name. 

While this is a general overview of the rules and regulations related to proprietary limited companies in Australia, the following are the steps one needs to complete to reach to function such a company in Australia:

Choosing a business name

Every company in Australia must have its unique business name, including Proprietary Limited Companies. Before going forward with a specific name, one should ensure that he has thoroughly checked through the registered or pending trademarks in Australia. 

This can be done by checking the Secretary of State’s website and trademarks through the US Trademark Electronic Search System. If he cannot come up with his unique name, his Australian Company Number (ACN), which was provided to him during the formation process of the Company, shall act as the Company name temporarily.

The legal status of the Company is required to be displayed with this name. Therefore, Proprietary Limited Companies are required to display ‘Pty’ at the end of their name. In addition to this, some other requirements have been provided by the US Secretary of State. These include:

• Not using words that are present in any Municipality or Government organization’s name, such as “FBI”, “Treasury”, or “State Department.”

• Not using phrases or words related to Law, Banking, Insurance, Finance, etc. In some exceptional situations, he might be allowed to use these phrases and words, provided he gets permission from the State Authority regulating these industries.

• He cannot mislead the public through his LLC name in any manner, such as by rearranging the name of a well-known business.

• Not using offensive, derogatory, or divisive words.

While it was allowed for multiple businesses to have similar or same names as long as they were registered in different States and Territories, this is no longer the case since May 2012. The changes were brought in through ASIC’s National Register.

Forming the company with an RA (Registered Agent)

In order to form an LLC in Australia, a Registered Agent shall be used for the process of Incorporation of an LLC. The State’s Secretary requires a Registered Agent (RA) operating in the State in which the LLC business is formed and located. This is a crucial step while opening an LLC in Australia.

A Registered Agent (RA) is a person or entity who lives in the State where the LLC is formed and also, who is willing to accept official correspondence on the Owner’s behalf. There are, however, some strict criteria while choosing and appointing a RA. These are:

• He should have publicly available information.

• He shall be available for at least five days per week. 

Drafting and signing bylaws for the LLC

One is required to decide on the governance of his Proprietary Limited Company in Australia. This can be done in multiple ways:

• By operating his Company under the replaceable rules, as listed under the Corporations Act. 

• Through the creation of a unique constitution for his Company.

• By incorporating elements of the replaceable rules, along with including his own rules.

An internal governance system is not required for a Proprietary Limited Company to have a Sole Director, who also fulfills the role of the single shareholder.

Appointing a company director and other statutory officeholders

As mentioned above, one requires a partner along with a legal representative residing in Australia to become eligible to form an LLC. This role is also known as the “Company Director in Australia”, and each Proprietary Limited Company is required to have at least one person in such a role.

The main tasks of a Company Director are to oversee the affairs of the Company and to ensure that the Company remains compliant with its obligations under the Corporations Act. Foreign companies are allowed to appoint a Nominee Director, who shall be an individual external to the Company but authorized to make legal decisions on the company’s behalf.

Ideally, one should hire a private service provider for this task, especially someone who is experienced with the commercial aspects of Australian law, such as Company Incorporation, hiring staff, signing complex legal documents and contracts, or even dealing with company liquidation.

Registering with the Australian Securities and Investments Commission (ASIC)

It is possible to register a company either online or on paper. An online portal has been provided by Australia’s Business Registration Services, for one to be able to complete his application in an easy manner. There might be instances where he might face difficulties in registering his Company online. In such scenarios, he may prefer engaging an external service provider to help him with the process.

Once he is successfully able to get the approval for his application, his Proprietary Limited Company shall receive its Australian Company Number, Australian Business Number, Certificate of Registration, and a corporate key, which is used to securely update his Company information.

Some of the documents that would be required for Company registration in Australia, in case the registration is done in an offline mode, are:

• Application Form (Form 201)

• Name Reservation (Form 410)

• Constitution/Rules of the Company

• Shareholders’ and Directors’ information

• Valid IDs of the Incorporators, Officers, and Directors

• Proof of registered office address through a contract of lease or certificate of land title.

The country has strict regulations for anti-money laundering and counter-terrorism financing, and hence, the applicants are expected to conduct the required due diligence and ensure that they provide the documents. 

Getting your business and Tax Identification numbers

He is then expected to register for the appropriate taxes in Australia. All businesses are provided with a Tax File Number (TFN), which is automatically generated for the business once the Australian Business Number (ABN) has been received. 

ABN is a unique 11-digit number, which is used to identify one’s business by the Government and community. The procedure for obtaining the number can also be done online through the Business Registration Service website. 

Total cost and time frame to Register an LLC in Australia

If one goes forward with an online application, it doesn’t take more than 15 minutes to complete the online application, provided that he has the necessary documents, especially the Business Registration Service. Once he has completed the online application form, and the same is approved, he can expect to get the confirmation within 2 business days. 

When it comes to the cost of registering your limited liability company in Australia, the expected cost can range from $443 – $538. The cost is dependent on a range of factors, which can be understood by accessing Schedule 1 from the ASIC website. 

Pros and cons of registering a limited liability company in Australia

Pros of of registering a limited liability company in the Australia

Limited Liability: This follows the idea of a Company being its own legal entity, and hence, being liable for its own debts. Therefore, if a party is able to successfully bring a claim against a company, the concerned person would only be required to pay back the claim through the Company’s assets and cash reserves, and his personal assets shall not be attached. 

More Investors, Customers, and Suppliers: A company with third-party investments as part of its growth plans, is more likely to attract investors. This is because it helps provide security, flexibility, and transparency to the Company, leading to the Company winning more contracts and customers being more comfortable associating with the Company. 

Tax Efficiency: A company’s tax rate has been set at a flat 27% (or 30% for larger Companies), in contrast to 45% for individuals and Sole Traders. This makes a significant difference in the Company’s viability. 

Avoiding Conflict: Registration helps in avoiding any potential conflicts between business owners since it is the number of shares that ends up determining the ownership percentage in the Company. 

Costs of Registration: Since 2012, the registration of a name of the business in Australia is done nationally with specific separate Government charges of ＄39 and ＄92 for one year and three years respectively.   

Cons of registering a of registering a limited liability company in Australia

Directors’ Duties: Before going forward with the registration of the Company, the Directors need to understand their responsibilities completely. This is because any breach by the Director can result in them becoming personally liable or being prohibited from managing another Company or Companies. They might also be criminally liable, depending on the nature of the breach. 

Complying with Regulations: The Directors are responsible for ensuring that the Company complies with its obligations under the Corporation’s Law. Not following them can result in increased liability for the directors. 

Tax: Companies are expected to lodge an Annual Company Tax Return. While Companies are uniformly taxed at 27%, if Company profits are distributed to shareholders in the form of dividends, then such profits are taxed at each shareholder’s tax rate. Further, Companies are also not allowed to take advantage of the 50% capital gains discount.

Transferable Ownerships: It is harder to transfer an LLC ownership in Australia in comparison to a Corporation. In Corporations, the shares of stock are sold in order to increase ownership. The shareholders have the flexibility to sell their shares to a third person not related to the business structure in any form or any other person whom they wish to unless there is a Shareholders Agreement to the contrary. On the other hand, it is not the same for LLCs. All the Members have to agree first and give their approval for adding new Members or doing alterations in the percentages of ownership of Members already present and part of the LLC.

Conclusion

In conclusion, we have learned that LLCs are a popular and flexible type of business option for entrepreneurs who want to start and run their own businesses. As we have seen LLCs provide limited liability protection for the owners, avoiding double taxation by allowing pass-through taxation, and permit for various management and tax options. However, LLCs also have some drawbacks and challenges which are seen differently and faced in different jurisdictions subject to State registration fees and rules, self-employment tax, and legal and regulatory compliance.

Therefore, it is important to weigh the pros and cons of forming an LLC and compare it with other entity types before making any decision. Moreover, it is advisable to register an LLC in a state that has favorable laws and regulations for LLCs, such as low filing fees, procedures, minimal reporting and requirements, and strong asset protection.

This can help reduce the cost and risk of operating an LLC and enhance its performance and competitiveness. Registering a limited liability company in light jurisdiction can be a smart move for many types of business, but may also entail some trade-offs and considerations. Therefore it is recommended to do some research and planning before forming an LLC in any State.  

Frequently asked questions

What is the difference between LLC and LTD in the UK?

In the UK, a Limited Company (LTD) closely resembles a Limited Liability Company (LLC). Nonetheless, subtle distinctions set them apart, including;

• An LLC incurs lower annual fees, while an LTD provides more robust protection against creditors.
• An LLC is subject to taxation as the personal income of its owners, while an LTD is taxed as a separate corporate entity.
• An LLC operates without the involvement of stocks, whereas an LTD comprises shareholders who acquire a specific number of shares. 
• An LLC has fewer compliance obligations compared to an LTD.

What are the laws that govern LLCs in the UK?

LLCs in the UK are subject to specific legal regulations that oversee their operations and various aspects of LLC activities. These regulations include;

• LLC Securities Regulations, which outline the rules and procedures for offering, issuing, or selling securities; 
• Tax laws which govern the taxation of LLC profits; and 
• LLC Commercial Regulations encompass the creation of various LLC agreements and establish rules for entering into and enforcing employment contracts, promissory notes, and other standard commercial documents