Choosing a legal structure for your business is an important decision that will impact your day-to-day operations, taxes, and liability. If you’re launching an online business, it might be more advantageous to register your business in another jurisdiction.
Creating a UK LLP is a popular option among business owners who opt for offshore registration. Here’s why registering an LLP in the UK could be the right legal structure for your eCommerce business.
What Is a UK LLP?
A UK LLP is a Limited Liability Partnership with two or more members. There is a simple registration process that you can complete online. You will need to register an official name for your business and an address. The entire process shouldn’t take more than a few days.
You will need to submit your founding agreement where you define the terms of the partnership and outline what your business does.
If you create a UK LLP, your business entity will be exempt from taxes. However, you will pay taxes as an individual on your share of the profits. You won’t have to pay any UK taxes if you don’t live in the UK, but you will have to pay taxes in your country of residence.
One of the main advantages of the UK LLP structure is that you aren’t personally liable for business debts. If your business becomes insolvable, you will have to liquidate the business’ assets to pay back debtors, but the LLP structure will protect your personal assets.
Registering a UK LLP from Overseas
One of the main obstacles to registering a UK LLP is that you need an address or PO Box in the UK. The easiest way to create an LLP from overseas is to go through an agency that specializes in business registration and that can provide you with an address. You can use a PO Box and have your mail forwarded to your address overseas. These agencies can also help you open a UK bank account.
Other Legal Structures to Consider
A UK LLP isn’t the only option available. There are other business structures to consider if you want to register an offshore company.
You can create an IBC or International Business Company in many countries, including the British Virgin Islands, Cook Islands, Barbados, Bahamas, Saint Lucia, and other countries. Panama and Belize are popular options.
One of the main advantages of the IBC structure is that it allows you to have shareholders. Your company can pay out dividends to these shareholders who elect the directors.
Tax advantages vary from one country to another. Some countries don’t tax IBCs, while others have a low tax rate.
Privacy is another advantage to consider. Some countries like Panama don’t make the names of the shareholders or directors public.
There are a few downsides to consider:
- Some countries have regulations that limit your activities, and some countries require you to obtain a business license for some activities.
- Some countries like Panama require you to have at least three executives who can act as presidents.
- Some countries like Belize require you to file taxes, provide your accounting records, and collect income and business tax on IBCs.
You can register an LLC or Limited Liability Company in countries like Saint Kitts and Nevis, Anguilla, the Marshall Islands, or Liberia, just to cite a few options.
LLCs typically have a simple application process. The filings and record-keeping requirements are also simple.
Like with a UK LLP, your business won’t pay taxes, but you will have to report your profits on your personal taxes.
The LLC structure keeps your personal assets separate from those of the company. It provides some degree of asset protection for the business, and you won’t be personally liable for debts if your business goes bankrupt.
Depending on the offshore location you choose, it might be easier for foreign investors to finance your business venture. Some countries also give you the possibility to register an LLC with a single member.
There are a few drawbacks to consider:
- Costs can be higher compared to other business structures.
- Some activities aren’t compatible with an LLC structure.
- Some countries have strict filing requirements.
Why Choose a UK LLP over an IBC or LLC?
Registering a UK LLP is cheaper and simpler compared to other business structures. There are additional advantages to consider:
- A UK LLP is a fiscally transparent entity. The filing requirements make it easier to share financial information and build trust with investors or clients. It’s also easier to report your income when you file taxes in your country of residence.
- The business entity won’t pay any taxes. You will have to pay self-employment and possibly income tax on your share of the profit when you file your taxes in your country of residence. It’s a simple process, and you will spend less on taxes.
- With an IBC, dividends have to be equal between shareholders. With a UK LLP, you can divide profits in a more flexible manner, and each member can collect and pay taxes on a different amount.
- You will need to establish a founding agreement when you register your LLP. This document gives you control over determining how you want to remove members and possibly replace them.
- Registering a UK LLP gives you access to the UK legal system for things like intellectual property and patent law. You will benefit from better IP protection compared to other jurisdictions.
- The cost is a major draw of the UK LLP structure. The initial cost of registering your business, obtaining a UK address, and opening a bank account is lower than what you would have to spend in other countries.
A UK LLP is more affordable and easier to set up compared to other business structures. We found this guide very helpfull and up to date on how to setup your LLP together with a business bank account on a budget.
You won’t have to pay business taxes, and it’s an advantageous business structure with its profit-sharing model, transparent filing requirements, and the ability to define your own founding agreement.