Originally conceived in Wyoming, USA, an LLC arrangement can be described as ‘an association with limited liability’. In theory, it is a vehicle which has a corporate personality and limited liability but which is taxable as a partnership. In practice, however, the treatment of the vehicle depends on the drafting of the articles of organisation.
An LLC is formed under the Isle of Man Limited Liability Companies Act 1996, as amended by one or more persons registering the LLC’s articles of organisation with the Isle of Man Financial Services Authority and, simultaneously, entering in to an operating agreement. This makes provision for internal governance and members’ rights.
From a US perspective, an IOM LLC may be a constructive trust and, if not deemed a trust, it is, by default, a corporation but may elect to be treated as a partnership. Characterisation of an LLC as a trust or a partnership may be beneficial for US individuals, due to punitive tax implications associated with ownership of some types of private foreign companies.
US individuals may also consider use of an Isle of Man LLC as:
- a simple holding entity
- an asset protection vehicle
- a vehicle for joint ventures with non resident aliens
More generally, an Isle of Man LLC has the following attributes:
- It may be used as a tax transparent investment vehicle
- Unlike a true partnership, there is no limit on the number of members, so it is ideal for the issue of debt instruments in the raising of investment funds
- It may be used as a simple form of business entity, with the reduced regulatory requirements resulting in a lower administrative cost base
Benefits of an Isle of Man LLC versus sole traders and business established under the Isle of Man 1931 Companies Act, include:
- Limited liability for an individual who is currently operating as a sole trader
- Annual financial accounts obligations are much simpler compared with that of a 1931 Companies Act
- As mentioned above, an LLC is transparent for tax purposes, similar to personal ownership
If you have any limited liability company enquiries, please contact either of the following members of our team: