What is the difference between an LLC & an IBC?

The LLC (Limited Liability Company) began life in the US in the 1970s where it was first offered by the state of Wyoming (most US States now offer a version of the Wyoming LLC).


In recent years a number of nil tax “Offshore” jurisdictions (most notably Belize & Nevis) have decided to offer entrepreneurs the ability to incorporate an LLC or an IBC (International Business Company) product.


For most people it’s a bit of a mission trying to understand the difference between an LLC and an IBC. Hopefully this article will be useful to you in that regard.


First let’s look at the notion of an LLC.


An LLC is, in effect, a cross breed – displaying characteristics of both a Partnership and a Corporation.


Like a Partnership an LLC is designed as a pass-through entity. Generally speaking a Partnership does not file a return or pay tax, rather it distributes nett profits to the partners of the Partnership who then declare and pay tax on those receipts as/if applicable in the partner’s home state/country.  An LLC has members who receive membership units which deliver to the member almost exactly the same rights as shares. (The traditional form of Company, that is a Private Limited Company, issues shares and has shareholders who each receive shares in the Company).


Unlike shareholders in a Limited Company, the members of an LLC are treated the same, for tax purposes, as partners in a partnership. An LLC doesn’t file a return or pay tax; it distributes nett profits to the members who declare/pay tax on those receipts at home as/if applicable.


In the case of a Partnership partners share profits and are jointly and severally liable for the debts of the Partnership.


A key advantage of an LLC is that it’s a Corporation. Generally speaking (unlike Partners in a Partnership) the Directors/Officers and Shareholders/Members of a Corporation are not liable for debts incurred by the Company.


In certain Offshore Jurisdictions (eg Belize and Nevis), if you decide to form an LLC there, you also pick up some asset protection benefits. Specially before you can attack (ie via a law suit) the membership interests of a Belize or Nevis LLC you must first pay a sizeable bond to the Offshore (ie Belize or Nevis) Courts by way of security for costs (in Belize the amount is $US50,000, in Nevis it is US$100,000).


The downside of an LLC is that it’s designed as a flow through entity ie at least once a year you should distribute/pay nett profits to the members (which means ideally you’ll also need to set up a tax free Offshore Company to act as the member of your LLC).


The LLC/IBC Combo


In the current era, by far the most popular place to incorporate a (potentially) nil tax Offshore Company is Hong Kong.


An excellent alternative to a Hong Kong type Company is a combination of a US (eg Delaware or Wyoming or New Mexico) LLC and an IBC.


In this scenario the Delaware Company acts as your frontperson giving you commercial credibility (ie it has the appearance and smell of a respected International Trading entity but it’s actually a tax free Offshore Company).




An LLC is treated by the US Tax Authorities (“IRS”) as a Partnership ie as a flow through entity. Provided all the profit is distributed to the member/s of the LLC and provided the LLC has only one member (and provided that member is not a US resident or citizen) the LLC should pay no tax in the US.


To attain that result, all money will need to be paid from the LLC by years end hence you will need a/the 2nd company (ie a tax free IBC) to act as member for the structure to work.


Two other big advantages of using an American LLC are that:


  1. The USA has not committed to key International Information Exchange Treaties (which might otherwise reveal to your local taxman your connection to an Offshore Company); and
  2. In most cases, when we incorporate an American LLC, we don’t have to supply to the Registration Agent on the ground in the US proof of who is behind the Company.


To set up an American LLC with OCI will cost between $650 and $750 (+ $400 for Nominees which you’ll need to avoid tax onshore) and from 2nd year between $340 and $440 p/a.


To set up an IBC will cost between $900 and $1,600 + Nominees.


For more information on LLCs please click on this link: http://offshoreincorporate.com/usa-limited-liability-companies-llcs/


For more information on IBCs please click on this link: http://offshoreincorporate.com/products-services/offshore-companies/


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