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Limited Liability Company (LLC)

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A LLC is a legal entity with limited liability. A LLC as a legal form has several advantages. Learn more about them here.

A Limited Liability Company is a legal entity with limited liability. A LLC also stands for Limited Liability Company. The designation 'limited liability company' means a fixed group of shareholders. Within the LLC, the capital is divided into shares. Share ownership is shared by the shareholders, who collectively own 100% of the shares.

Liability

The LLC is a legal entity and this means that the owner is not personally liable for possible debts of the LLC. The main advantage of a LLC is that shareholders are protected from financial risk. The maximum amount shareholders can lose in case of bankruptcy is the nominal value of the shares they own in the company. This always leaves a boundary between personal assets and company finances. However, if there is mismanagement, negligence or fraud, owners can be held personally liable.

Conditions for establishment of a LLC

Setting up a LLC is a bit more complicated than, say, one-man business. To establish a limited liability company, several conditions must be met, namely:

  • The formation of the LLC should be done through a notary public by notarial deed. This deed contains the articles of association that state, among other things, the purpose of the company.
  • A minimum capital of €0.01 must be deposited.
  • The board has the task of registering the limited liability company in the Commercial Register at the Chamber of Commerce. Until this is done, the board is personally liable. 

Advantages and disadvantages of a limited liability company

A limited liability company (LLC) has both advantages and disadvantages. We have listed these for you. 

Advantages

  • The biggest advantage of a LLC is that as a director, you are in principle not liable for damages and debts of the LLC. With a sole proprietorship, however, you are always fully liable for these, even with your private assets.
  • Shares in a LLC are easily transferable. Through a share transfer, you transfer all debts and assets at once. With a sole proprietorship, this is much more complex.
  • You can be a director, shareholder and founder of a limited company yourself, but these can also be different people. This way, you can divide the tasks and don't have to do all the work yourself. Pretty convenient!
  • If you start making more turnover in a LLC, you will pay a lower tax rate (the corporate income tax). From about €80,000 net profit per year, the LLC is more tax attractive than a sole proprietorship. You can also make use of certain deductions, such as the investment deduction or the innovation box (stimulating innovative research).
  • With a LLC, it is possible to employ staff. 
  • A LLC appears more professional compared to a one-man business, as it is a legal entity created according to criteria regulated by law.

 

Disadvantages
A limited liability company can therefore be an attractive choice. However, there are also disadvantages to this legal form.

  • The costs of setting up a limited liability company, as well as the annual administrative costs, are generally higher than for a sole proprietorship, for example.
  • A LLC faces more rules and obligations, such as preparing annual accounts annually, keeping shareholder registers and holding shareholder meetings.
  • The tax rules for LLCs are more complex than for other forms of companies. 
  • You cannot claim the self-employed deduction, start-up deduction, SME exemption or Dutch Small Businesses Scheme.

Shareholders of a limited liability company

The capital of a LLC is divided into shares, which are held by shareholders. The supreme power within the LLC lies with these shareholders. If you are only a shareholder and not a director, your liability is limited to the amount with which you participate in the organisation. Annually, the board must prepare annual accounts and publish them in time in the Trade Register. The general meeting (of shareholders) must approve the annual accounts. Late or incomplete publication may lead to directors' liability.

Taxes LLC

The capital of a LLC is divided into shares, which are held by shareholders. The supreme power within the LLC lies with these shareholders. If you are only a shareholder and not a director, your liability is limited to the amount with which you participate in the organisation. Annually, the board must prepare annual accounts and publish them in time in the Trade Register. The general meeting (of shareholders) must approve the annual accounts. Late or incomplete publication may lead to directors' liability.

Holding limited liability company

The holding company, like the LLC, is a corporation. There are many misconceptions about different types of LLCs. A holding LLC, a working LLC, Management LLC, Savings LLC, etc. These are all LLCs, it is only the objective that is different. The difference between a LLC and the holding company is that the holding company passively holds shares in a LLC. A holding company is used as a vehicle to hang underlying LLCs under. This offers legal and tax advantages. By housing the valuable assets in the holding LLC, they are shielded from bankruptcy. The real business is always done from the operating company, of which the holding company holds the shares. The operating company ('working LLC') is therefore where the risks are.

Personal and expert advice LLC

Do you have questions about LLC or other legal forms? We have the necessary knowledge and experience in setting up a limited liability company (LLC), holding company structures, directors' liability and more. If so, please feel free to contact us. 

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