The Concept of Limited Liability Company

Due to the above-mentioned factors, the countries have started to develop offshore legislation, by implementing the concept of the limited liability company. The main features of the first LLC's were the limitation of the liabilities of directors and stockholders to the amount of the share capitalization of the company, and the company being a separate legal entity, distinct from its owners. This separation of the company from its owners ensured that, for example, in case of company's failure, its investors and creditors were limited in their financial liability to the amount of the share capital they owned (most often, that means that directors and stockholders simply lost their original investment).

Over the years, the legislation concerning limited liability companies has changed a lot, in order to keep pace with modern business practices, but the basic concept has remained. It is the separate legal identity factor that makes the limited company an ideal tax planning vehicle.