When it comes to business registration, Marshall Islands Limited Liability Company (LLC) is a good one to go for entrepreneurs with hybrid features of Marshall Islands International Business Company (IBC) and partnership.
The number of Marshall Islands LLC has increased in number recently, and the question is what makes entrepreneurs fascinated about Marshall Islands LLC and how to start one. Let’s discover with BBCIncorp.
1. Marshall Islands LLC at a glance
The Republic of Marshall Islands (RMI) is a small island with a population of approximately 60,000. The country has English as its second language and the US dollar as the official currency. Major legal business forms in the island are Marshall Islands IBC and Marshall Islands LLC. You can form a domestic LLC or an offshore LLC which is registered in the island but for doing business in other countries.
Marshall Islands LLC is a legal entity which has limited liability of a corporation and flexibility in allocating management responsibilities, gains and losses of a partnership. It’s crucial to understand the characteristics of the business entity before you start the registration.
Corporate legislation. The Marshall Islands applies English Common Law and uses Delaware LLC as a model, which makes it easy to be recognized. The island uses Limited Liability Company Act 1996 with some amendments in years later to manage LLC registration and operations.
Corporate structure. Marshall Islands LLC is governed by members and managers. The government requires the company to have at least one member and one manager for the company formation. Members and managers can be individuals or legal entities. Additionally, they can be the outsiders to the company.
There is no limit on the number of LLC members. Thus, the company structure can be flexible. It can be one-single member LLC, two-member LLC or multi-member LLC.
Management. As mentioned above, the company members don’t need to participate in managing the LLC affairs. It is possible for them to appoint managers whether they are the LLC members or not to govern the corporate matters. It is a plus point regarding investment attraction.
Liability. The liability of the LLC members is limited to the amount of their capital contributions to the company.
Trading restrictions. The island does not allow the LLC to carry on any business activities in insurance or assuming insurance risks, trust services or banking.
2. Pros and cons of Marshall Islands LLC
Marshall Islands designs a legal system and policies encouraging business incorporation within the territory, especially for offshore business. Therefore, LLCs registered in the country enjoy many benefits. Below are the key ones.
Favorable tax treatments. There is no corporate tax, personal income tax, withholding tax subject to the LLC for income or assets deprived from other jurisdictions out of the Marshall Islands. Moreover, no capital gains and stamp duty are imposed on the LLC formed in the country.
All tax exemptions are applicable to all non-resident companies and non-resident company members. If the LLC or its members are identified as tax residents, they may be subject to corporate income tax.
Separate liability. The company members are not liable for the company’s debts and obligations, and vice versa.
High protection of assets. Thanks to the separate liability, LLC members’ assets are safe from the company’s creditors.
High level of corporate anonymity. Marshall Islands doesn’t require business owners to publicize the names of company members and managers. Besides, the country allows LLCs to use nominee directors and managers to work on behalf of company members.
No requirement of minimum capitalisation. Business owners can start a Marshall Islands LLC at any capital amount. But there is a minimum capitalization for an IBC.
Minimal reporting requirement. There is no annual reporting requirement for LLCs. There is also no need to file accounting and auditing records to the government. The company, however, should keep the records in case an inspection is required.
Marshall Islands Series LLC. Because the Marshall Islands LLC Act is based on the Delaware LLC Act, business owners can enjoy one great advantage that they can form Series LLC. The Series allows companies to form many LLC units with separate corporate structures, members and managers and separate liability.
Re-domiciling policy. Any company which was already registered in other jurisdictions can re-domicile the registration to Marshall Islands with the same entity identification under Marshall Islands law, and vice versa.
No exchange control. There are no controls on any purchases and sales of local currencies or transfers of any currency across the country border. Marshall Islands LLC can use and exchange any currency at its convenience.
Whitelisted jurisdiction. Marshall Islands is listed in white list which was established by The Organisation for Economic Co-operation and Development (OECD) to prove the countries’ tax transparency. Being a whitelisted country makes it convenient for companies registered in Marshall Islands to conduct business without fear of violating tax transparency standards.
Besides many advantages of Marshall Islands LLC, there is only one disadvantage that some companies have to follow the Economic substance rules. A legal substance requirement will be required for certain business entities registered in Marshall Islands. The Marshall Islands Economic Substance Regulations of 2018 (the “Regulations”) requires that relevant entities conducting one or more relevant activities in the Islands must fulfill reporting obligations concerning their actual level of economic substance in the jurisdiction.
All companies which meet the economic substance requirements in other jurisdictions don’t need to take the test in Marshall Islands.
3. How to register a Marshall Islands LLC
Marshall Islands is famous for its simple and efficient business registration. When it comes to Marshall Islands LLC formation, there are three main steps to form a Marshall Islands LLC. The Registrar of Corporations is the department responsible for all procedures regarding LLC formation.
Step 1: Identify registered agent
Designating a registered agent or office is the initial step for any business owners before filing the company registration. The RMI requires all domestic and foreign companies to appoint and maintain a registered agent during their existence in the company register. The agent works as the intermediary to receive all legal documents and notices from the Registrar.
A registered agent can be an individual or a business entity. The agent must have a physical address presence in Marshall Islands. Any LLC which fails to maintain a registered agent in the island will be forced to cancel the business in the country or dissolved.
Step 2: Name the company
The LLC name must be determined before filing the company registration. The name must follow the country’s regulations set out in the Limited Liability Company Act:
- The company name must contain n the word “Limited Liability Company” or its abbreviation as “L.L.C.” or “LLC”;
- It can include the name of a member or manager;
- It must be the only name in the list of companies registered with the Registrar of Corporations.
You check the availability of the desired name here. The island also allows the incorporator to reserve the desired name to avoid being taken by other business incorporators.
Step 3: File Certificate of Formation
Final step to make your LLC available to the Marshall Islands company system is to file the Certificate of Formation with the Registrar of Corporations. The certificate acts as your LLC’s birth certificate to prove the legal existence of your company in the country.
Below are required information for the filing:
- The LLC name;
- Name and address of the registered agent;
- The time which is planned for the company dissolution, if any;
- A statement which guarantees the company compliance with all applicable provisions of the Republic of the Marshall Islands Limited Liability Company Act.
4. Other matters to be considered
Operating agreement. It is also called the LLC agreement which is a set of rules set out for internal management and operations of the company. The agreement can be in a written form or just orally agreed by all company members. It’s crucial and advisable but not mandatory to adopt the operating agreement.
Licensing requirements. Specific business sectors are required to obtain specific licenses and permits. The licensing registration allows your LLC to lawfully exist and operate business in Marshall Islands. It is recommended that you should contact the department responsible for licensing issuance to know which licenses and permits are required for your LLC.
Bank account opening. Having a bank account is essential to manage all business transactions of your Marshal Islands LLC. The problem is banking options are limited in the country. It would be easy for a resident to obtain a bank account, but it would be very troublesome for a non-resident. It is advised for a business owner to consult a trusted service provider to open a bank account for the Marshall Islands LLC.
Employer Identification Number (EIN) application. The number is issued by the Marshall Islands Social Security Administration (MISSA) to identify or register all employers and employees as taxpayers. The island requires all LLCs which have employers and employees working within the territory to obtain the EIN.
Many entrepreneurs have been choosing Marshall Islands LLC for their businesses thanks to many beneficial features. It is important for business owners to understand the business entity before the registration process to determine whether it fits the business needs.
The incorporation process seems to be simple but it could be problematic for newbies. If you intend to do Marshall Islands company formation, it is recommended to see an experienced agency who can help you with the registration process at ease.