Company Types

Form your LLC or C-corporation with Subhan Law

Advising you on the right business structure to enter the U.S. market

What are the differences between an LLC versus a C-corp?

Working with Subhan Law, you can incorporate a Limited Liability Company (LLC) or C-corporation in any U.S. state or territory or offshore. We also assist our clients with establishing holding companies, subsidiaries, and other types of entities. Each entity type is suited to different business needs. This guide outlines what you need to know about the most common types of entities.

LLC

Organize an LLC in any state. You can start an LLC with a single founder or a group of founders. A founder of an LLC is considered an owner. An owner of an LLC is called a "member." In this guide, member, founder, or owner all mean the same thing. A founder can also be a separate company or trust. If owned by a separate foreign company, then generally the LLC would be a subsidiary of the foreign parent company.

Here are a few characteristics that are common to LLCs:

• Limited Personal Liability: The law treats an LLC as a separate business entity from its owners, which protects the owners from personal liability.

• Flexibility: LLCs offer flexibility in terms of customizing the management structure, tax classification, and profits distribution.

• Ease of Use: Relatively straightforward formation process and no annual board meetings.

• Ownership: Often used by small businesses that don’t plan to give equity to employees.

• Capital: Common for founders who don’t plan to raise venture capital.

• Tax treatment: Profits and losses are passed through to founders by default. This simplifies taxes for LLCs with a single founder in the US. LLCs can avoid double taxation. Also, LLCs with non-US founders may be able to create a tax-free LLC under certain circumstances. However, if you have multiple founders, tax filings can become more complex.

C-corporation

Incorporate a C-corporation in any US state or territory or offshore. Generally, we recommend a Delaware C-corporation for startups seeking to raise capital in the United States.

Here are a few characteristics that are common to C corporations.

• Personal limited liability: Protects personal assets from business debts and lawsuits.

• Ownership: Used to grant equity to employees, advisors, and investors.

• Capital : Preferred by institutional investors who might be unable to invest in LLCs.

• Tax treatment: Can typically use early startup losses to offset future taxes, subject to some limitations. C-corporations can also deduct fringe benefits such as company car, membership in clubs, and others. C-corps also can qualify for Qualified Small Business Stock (QSBS).

If your company is a subsidiary of an existing company, we'll assist you in issuing shares to your parent company after incorporation.

Holding Companies

Holding companies may be either LLCs or Corporations. Instead of engaging in operations, they own and control other companies and assets. Holding companies may also loan or lease their assets to third parties. The companies engaged in operations are called operating companies. The purpose of a holding company is to isolate liabilities, mitigate risks, provide anonymity, and create tax efficiencies.

Here are a few common types of holding companies:

• Real Estate Investors: Owning and renting real estate is inherently risky. Separating property management from the real estate can prevent catastrophic losses from slip and fall and other frivolous lawsuits.

• E-Commerce: Opening subsidiaries for different product lines not only isolates risk, but makes it easier to sell product lines individually.

• Families: One holding company makes it easier to manage disparate interests in other companies and assets. It also allows for the filing of a consolidated return.

• Estate Planning: Rather than the effort of an estate plan, some choose to pass assets on via an LLC. While we always recommend an estate plan, generally using a trust, we know some clients do view this as a more affordable option.

• Other Risky Industries: Any industry with risky but valuable assets. Those assets should be owned by one company and operated by another. .

Cayman Trifecta

Founders from Latin America (LATAM) can incorporate using the Cayman Trifecta. Generally, for LATAM founders seeking to raise capital from US and non-US investors, we recommend the Cayman Trifecta.

The Cayman Trifecta is a business structure that uses a Cayman holding company, which owns 100% of a Delaware LLC, and the Delaware LLC owns 100% of the operating company in LATAM. As of 2022, a whopping 47.7% of all LATAM unicorns have a Cayman Islands holding company as part of their company structure.

Here are a few characteristics that are common to the Cayman Trifecta.

• A Cayman holding company, with investors and individuals holding shares at the top.

• A Delaware LLC intermediary, optimizing for exits and adding disclosure advantages.

• A LATAM operating company, isolating all of the legal liabilities.

The primary advantage of the Cayman Trifecta is that in an exit transaction shareholders can approve an asset sale of the Delaware LLC or LATAM operating comany and the proceeds of that sale transaction will generally flow up the corporate structure on a tax free basis.

Viva Real failed to use this structure on their $600 million dollar exit and they got hit with a $100 million dollar tax bill. Another case involved an Argentine entrepreneur. He had a $2 million dollar exit and had to pay $600,000 in US taxes because he did not have this structure in place. The Cayman Trifecta structure is proven and well accepted.

A few notable companies who have used the Cayman Trifecta include: NuBank, Cornershop, Tiendanube, Creditas, and QuintoAndar.