The Isle of Man is unusual in having a system of company law that allows both for an English-style company limited by shares (Ltd.) and for a US-style LLC.
Although these two corporate forms are often used for the same purpose when only one is available, how do they compare when head to head in the same jurisdiction?
- The LLC is much more like a limited liability partnership (LLP) than an English private limited company, requiring at least two owners (versus only one shareholder for a company).
- LLCs are by default managed by their partners rather than designated managers, whereas owners (shareholders) and managers (directors) are separate roles in the English-style company.
- The owners’ liability in an LLC is limited to the amount of their initial capital contribution, although they do not receive shares in return for these contributions. However, votes and profits are distributed in proportion to contributions unless otherwise agreed.
- Ownership and management of an LLC cannot be transferred or assigned, unlike the shares of a company. However, new members can be added and existing members can redeem their stakes.
- Isle of Man LLCs completely tax transparent, being taxed as partnerships. Consequently, profits are imputed directly onto the owners’ income in the relevant year. In contrast, a company’s income does not pass to the shareholders until a dividend is declared.
- LLCs have two founding documents called the “articles of organisation” and “operating agreement”, whereas a company will have both “articles of association” and a “memorandum of association”. All of these documents save for the operating agreement are public, and the operating document is similar to the optional “shareholders’ agreement” that can be used by companies.
- An LLC may have an unlimited number of members and is therefore useful as a tax transparent investment vehicle. A private company limited by shares, on the other hand, is typically limited to 50 shareholders.
- Since there is no requirement for annual meetings of an LLC’s members, there is less ongoing administration for an LLC than for a company.
- The two entity types are governed by different legislation: the company is covered by the Companies Act 2006, based on the English law of the same name, while the law relating to LLCs is set out by the Limited Liability Companies Act 1996.
Choosing an entity type
What do these differences mean from a practical perspective? One particular advantage of the LLC’s tax transparency is that US residents are not penalised under controlled foreign company rules. It is therefore useful if investing with or alongside American residents.
For most types of businesses not dealing with US residents as partners, the company will likely be the most appropriate option, with governance requirements similar to those in most common law jurisdictions.
To discuss the appropriate vehicle and structure for your business in the Isle of Man, contact Healy Consultants Group.
- Guide to Isle of Man partnerships, trusts and LLCs
- Companies in the Isle of Man under the Companies Act 2006
Photo credit:“The Legs of Man – Isle of Man Triskelion – kingsley – 19-APR-09” by Gregory J Kingsley – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons.