LLC's - TCI Limited Life Companies
LLC's were first introduced into TCI law by
the Companies Amendment Ordinance of 1994. They are
effectively hybrids between partnerships and companies. They
afford limited liability to members and are treated as
partnerships in certain countries for tax purposes.
This means that LLC's are generally
tax-transparent with income/dividend distributions being
attributed to the members without the imposition of
corporation tax. This is achieved principally by limiting the
life-span of the entity and thereby avoiding the
characteristic of perpetual existence, which is a principal
indicator of corporate existence.
Standard exempted companies (IBC's) can
apply to be registered as LLC's upon application to the
Registrar of Companies by annexing a Special Resolution
limiting the life of the company to 50 years and changing the
company's name to include the suffix "LLC". This is a simple
and inexpensive process if you have an existing IBC which you
wish to continue into the islands in order to change its
nature to that of an LLC. Feel free to contact us if you would
like assistance wi5th a restructuring of this sort and we will
be happy to provide you with a breakdown of the costs and
timeframes involved.
How are they used?
Several multinational companies have
utilized TCI LLC's as a vehicle to raise capital from US
investors by the issuance of preference shares. Where this is
done the proceeds of the sale of the LLC's preference shares
are then lent to the issuer's (on-shore) parent company.
Because the parent company has effectively borrowed monies
from its TCI subsidiary, it can treat the entire of the monies
so raised as an ordinary tax-deductible loan thereby
significantly reducing its overall tax exposure. Furthermore,
as noted above, because LLC's can be classified as
partnerships the TCI subsidiary can avoid withholding taxes on
the interest payments. By contrast, for normal US tax purposes
if preference shares had been issued directly by the
multinational, it could only deduct the interest costs of the
preference share offering but not the dividends paid on the
stock.
In a nutshell, parent companies can by
using TCI LLC's, deduct "dividends" on preferred shares by
treating such payments as interest for tax purposes. By
reducing exposure to taxation in this way the relevant
multinational can build its capital reserves more rapidly than
would otherwise be possible.
Due to their flexibility of form, it is
also possible to use TCI LLC's to secure certain asset
protection benefits, by separating the management of the LLC
from the beneficial ownership. This can create interesting
possibilities in a private client setting when coupled with
the tax efficiencies mentioned above.
We would be delighted to discuss the other
potential benefits with individuals and/or their tax advisors
and will provide further more detailed information on the
possibilities afforded by TCI LLC's. Should this area be of
interest to you, send us a brief email requesting further
information or outlining your current situation and objectives
and we will get back to you as soon as we can.
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