The limited liability company (LLC) is a widely used legal formation in the US that provides a range of benefits, especially for small and medium-sized enterprises (SMEs). German citizens can set up LLCs, but it’s important to understand the process and potential hurdles.

This article explains what an LLC is, its benefits, and how it differs from a corporation. We also explain who can benefit from setting up an LLC and guide you through the process step-by-step.

What’s in this article?

• What is an LLC?
  
• What are the advantages of an LLC?
  
• Who is an LLC suitable for?
  
• What’s the difference between an LLC and a corporation?
  
• How can you set up an LLC from Germany?
  
• How Stripe Atlas can help
  

What is an LLC?

The limited liability company (LLC) is a hybrid company formation that combines the benefits of both a corporation and a partnership. It can protect its shareholders from personal liability while offering a high degree of tax flexibility. Profits either flow directly to the shareholders or are taxed at the corporate level, as in a corporation. This is because the LLC can choose whether it wants to be treated as a partnership or a corporation for tax purposes.

German private individuals and businesses can also set up LLCs in the US. Residency in the US and US citizenship are not required. An LLC is particularly well-suited to international business models, digital products, or US market activities. However, if an individual or business resident of Germany sets up an LLC, they still have to comply with tax and reporting obligations in Germany. In particular, they might have to pay tax on the income the LLC generates in Germany.

What are the advantages of an LLC?

There is a range of benefits for German citizens setting up an LLC. Here are some of the key advantages:

Limitation of liability

An LLC is an effective way to protect against personal liability. From a legal perspective, a German citizen or business that sets up an LLC from Germany does not personally assume the liabilities of their US company. In the event of contract disputes, defaults, or lawsuits in the US, generally only the LLC and its business assets are liable. As a rule, this means German founders’ private assets are not affected.

Tax flexibility

Those thinking about setting up a US LLC in Germany should research tax options. In the US, an LLC can be treated as a “pass-through entity,” which means its profits flow directly to its members without the company being liable for corporation tax. Alternatively, an LLC can be taxed as a corporation. This flexibility allows German founders to select the tax regime that affords them the most benefits. That said, they are still liable for tax in Germany.

Simplified processes

Setting up and running an LLC is relatively straightforward for German citizens and businesses. There are fewer formal requirements for an LLC compared to other company types, including in areas such as internal organization, bookkeeping, and compiling records and reports. For that reason, founders of LLCs in the US have the benefit of clear, simplified processes and minimal admin.

Easy capital acquisition

With an LLC, it is easy to onboard new capital by bringing on additional members or investors. This can simplify funding rounds. For German founders, the process of generating capital in the US market for growth projects can be faster and more flexible.

Excellent reputation in the US market

Setting up a US LLC can also make strategic sense for German citizens or businesses that want to improve access to the market. This well-established US legal formation has an excellent reputation in the US and signals to business partners and customers that the company is serious and reliable. This can make it easier to find partners, as many US businesses and service providers prefer to cooperate with local firms. For digital business models—such as ecommerce, software-as-a-service (SaaS), or consulting services—a US LLC is an important sign of market access and professionalism.

Who is an LLC suitable for?

There are a number of different reasons why setting up an LLC might be an attractive option for German entrepreneurs. Here are some target groups that can benefit from setting up an LLC:

Entrepreneurs with a US focus

The LLC is a particularly suitable option for German entrepreneurs who seek to enter the US market or who are already active there. An LLC gives them an official US presence and can make it easier to establish business relationships. German businesses can also benefit from the high level of acceptance and trust that LLCs have in the US.

Startups and growth companies

There are benefits to LLCs for startups and fast-growing firms. An LLC enables them to onboard new capital quickly and react flexibly to market changes. Bringing on new investors or members is a straightforward process, which can simplify funding rounds. For German founders, there are more opportunities for expansion and flexibility as international entrepreneurs.

Nondomiciled status holders and entrepreneurs in low-tax countries

A German citizen with nondomiciled status or one who lives in a low-tax country can benefit from additional organizational configurations by setting up an LLC in the US. An LLC offers the flexibility to structure profits in a tax-efficient way, with “pass-through” taxation often preventing or reducing double taxation. This makes setting up an LLC from Germany well-suited for those who operate internationally and want to reduce their tax burdens.

Digital nomads

The LLC is also a suitable option for digital nomads—those with no fixed place of residence who work from different locations. An LLC allows them to offer digital products and services worldwide without the need for costly local formation processes. A US LLC can act as a sort of international platform, without the need for founders to reside permanently in the US.

What’s the difference between an LLC and a corporation?

An LLC is just one of several types of companies available to founders in the US. An alternative is the corporation, often designated with “Incorporated” or “Inc.” The corporation is the US version of a German public limited company (Aktiengesellschaft, or AG). The best legal formation for a business depends on its goals and business model. Below, we provide a list of the main differences between a corporation and an LLC:

Company structure

Because of its simple structure, an LLC is most suitable for smaller businesses, single founders, or partnerships. Members decide whether to manage the business or hire a managing director. On the other hand, a corporation—especially the classic C corporation (C corp)—has a strict hierarchy with shareholders, an executive board, and managers. This formation can be particularly suited for high-growth businesses in need of large amounts of capital.

Taxation

One of the key differences between these two company types is how they are taxed. An LLC allows profits to flow directly to shareholders who pay tax accordingly. Double taxation at the company and shareholder level is generally not applicable. For entrepreneurs who want to establish a US LLC in Germany, this pass-through structure can be beneficial from a tax perspective. However, the US classification of an LLC is not binding for German authorities. Therefore, an LLC treated as a partnership in the US can be considered a corporation in Germany. A corporation is generally subject to corporate income tax at the company level. Distributions to shareholders are also taxed at the individual level.

Administration

LLCs and corporations also differ in terms of the amount of admin they each require. In most US states, LLCs are subject to fewer formal requirements. There’s no need for regular shareholder meetings or detailed records. Bookkeeping also tends to be easier. Corporations, on the other hand, have to fulfill strict reporting requirements, including annual general meetings, recordkeeping, and, in some cases, external audits. This can make admin more time-consuming.

How can you set up an LLC from Germany?

A citizen or resident of Germany looking to set up an LLC should consider the following steps:

Choose a state and check company names

First, you need to decide in which US state you will set up your LLC. The regulations and requirements for setting up and running an LLC differ from state to state—in some cases, significantly. Next, choose a name for your business. This name must contain the designation “LLC” and cannot infringe on existing trademarks. You are also not allowed to use any prohibited words. Most states publish lists of words that are not permitted. If your business will operate under a name different from the one under which it is registered, many states require a “Doing Business As” (DBA) registration. Once you’ve chosen a name, you should also secure the corresponding internet domain.

File articles of organization

You officially set up your US LLC by filing articles of organization with the relevant Secretary of State. Depending on the state, this document usually contains only a few pieces of information, including the name and address of the LLC, information on your US headquarters, and the names of the founder(s) or managing directors. Most of the forms can be filled in and filed online.

Appoint a registered agent

Every LLC must appoint a registered agent—a person or company based in the state where your business was founded. The registered agent acts as an official point of contact for public authorities and can receive tax notices or court documents. An LLC does not have legal capacity without a registered agent.

Draw up an operating agreement

The operating agreement sets out the bylaws of your LLC. While not mandatory in every US state, it is a helpful document that outlines factors such as voting rights, authority, profit distribution, and legal representation. If you set up an LLC from Germany, then a clear operating agreement is particularly important to help avoid legal and tax ambiguities.

Apply for an Employer Identification Number (EIN)

The EIN is an LLC’s national tax ID. You need to open a business account, hire employees, conclude contracts, and pay taxes. You can apply for an EIN from the Internal Revenue Service (IRS) free of charge.

Open a business account

When you receive an EIN, you should open a separate business account in the name of your LLC. This account must be managed separately from private accounts to qualify for liability protection.

Check licenses, permits, and visas

Determine whether your LLC needs additional business permits, export or import licenses, or industry-related registrations. If German team members intend to work in the US, they will need immigration and work visas.

Clarify taxation in Germany

When setting up or running a US LLC from Germany, it’s important to consult a tax advisor to clarify your business’s taxation in Germany. Potential issues include setting up a permanent establishment in Germany, subjecting profits to double taxation, and using a German holding company to achieve an ideal structure.

How Stripe Atlas can help

Stripe Atlas sets up your company’s legal foundations so you can fundraise, open a bank account, and accept payments within two business days from anywhere in the world.

Join 75K+ companies incorporated using Atlas, including startups backed by top investors like Y Combinator, a16z, and General Catalyst.

Applying to Atlas

Applying to form a company with Atlas takes less than 10 minutes. You’ll choose your company structure, instantly confirm whether your company name is available, and add up to four cofounders. You’ll also decide how to split equity, reserve a pool of equity for future investors and employees, appoint officers, and then e-sign all your documents. Any cofounders will receive emails inviting them to e-sign their documents, too.

Accepting payments and banking before your EIN arrives

After forming your company, Atlas files for your EIN. Founders with a US Social Security number, address, and cell phone number are eligible for IRS expedited processing, while others will receive standard processing, which can take a little longer. Additionally, Atlas enables pre-EIN payments and banking, so you can start accepting payments and making transactions before your EIN arrives.

Cashless founder stock purchase

Founders can purchase initial shares using their intellectual property (e.g., copyrights or patents) instead of cash, with proof of purchase stored in your Atlas Dashboard. Your IP must be valued at $100 or less to use this feature; if you own IP above that value, consult a lawyer before proceeding.

Automatic 83(b) tax election filing

Founders can file an 83(b) tax election to reduce personal income taxes. Atlas will file it for you—whether you are a US or non-US founder—with USPS Certified Mail and tracking. You’ll receive a signed 83(b) election and proof of filing directly in your Stripe Dashboard.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company. Atlas C corp documents are built in collaboration with Cooley, one of the world’s leading venture capital law firms. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects like ownership structure, equity distribution, and tax compliance.

A free year of Stripe Payments, plus $50K in partner credits and discounts

Atlas collaborates with top-tier partners to give founders exclusive discounts and credits. These include discounts on essential tools for engineering, tax, finance, compliance, and operations from industry leaders like AWS, Carta, and Perplexity. We also provide you with your required Delaware registered agent for free in your first year. Plus, as an Atlas user, you’ll access additional Stripe benefits, including up to a year of free payment processing for up to $100K in payments volume.

Learn more about how Atlas can help you set up your new business quickly and easily, and get started today.