Comparative Analysis of Limited Liability Companies in Bahrain and US

This report delves into the structure and function of Limited Liability Companies (LLCs), emphasizing their importance, advantages, and disadvantages. It defines LLCs as a hybrid business structure offering liability protection to owners while providing operational flexibility. The report highlights the benefits of LLCs, such as flexible tax structures and protection of personal assets from business liabilities, while also acknowledging potential drawbacks like varying state regulations and additional fees. A significant portion of the report offers a comparative analysis of LLCs in Bahrain and the United States, examining their specific legal frameworks, requirements for establishment, and operational guidelines. The Bahrain section focuses on requirements for shareholders, directors, and capital, while the US section explores the flexibility in ownership structure and management. The report concludes by summarizing key findings and offering insights into the application of LLCs in different global contexts.

Limited Liability Companies

LIMITED LIABILITY COMPANIES 1
Introduction
Limited Liability Company is an organisational structure in which owners are not personally
liable for liabilities. The limited liability companies are the combination of sole
proprietorship and partnership. Limited Liability Company is business structure that is
allowed by under state statues. There are different types of business structure in the market
such as partnership, sole proprietorship and many others (Schell, 2018). This paper brings the
discussion on the topic of limited liability companies. The system of limited liability is
beneficial for the owners as it protects them from frauds. There are many other advantages of
this structure that will be discussed in this paper. The discussion of on this topic will be
discussed to analyse its importance, advantage and disadvantages. After that, the nature of
limited liabilities companies in different countries will be evaluated.
Importance
Limited Liability Company structure is essential for owners and the other stakeholders. These
are discussed below:
Risk
The limited liability structure defines the situation in which the owners are not liable to pay
the liabilities personally. Shareholders are also considered as the owners of the organisation.
This structure is beneficial for the owners as they have less risk to pay the liability amount of
an organisation. Shareholders invest the amount in the organisation to gain the high profit and
interest in return. But if the company falls under the loss and liabilities then the shareholders
faces the loss as they does not get their investment amount in return. But as per the limited
liability structure, they are not personally liable to pay the amount of liability. In the case of
sole proprietorship, the owner has large risk of paying the liability with personal properties

LIMITED LIABILITY COMPANIES 2
and assets. In the case of partnership, both the partners are liable to pay the amount of
liabilities as per their capital. But if there are shareholders in the organisation who invest in
the company and considered as the owners are not liable to pay the liability amount as per the
limited liability structure. The shareholders (owners) are free to invest or operate the business
with the less risk of paying the liability.
Control
The sole proprietor has the full control over their business but the shareholders have control
over the company as per their shareholding dictates such as 70-80 %. Limited liability
structure of the organisation has to control the liability which is arising by the shareholder’s.
The shareholders who have the right of 70-80% in the organisation are not liable to pay the
liabilities personally that is why; they are also not have any right to take the decision
regarding the monetary transaction (Talbot, 2015). Due to limited liability structure, the
shareholder does not allowed to raise the liability. The liability of the organisation is
controlled and the owners are also protected themselves with the large amount of liability.
That is why; the limited liability structure is essential for the organisation to control the
liabilities.
Profits
As discussed above, the owners are able to control the liabilities in the organisation due to
which they can easily gain the high profit. It has been evaluated that reduces liability helps
the organisation to gain the high amount of profit. The owner has to pay the less amount of
liabilities due to which they can easily distributed the high amount of return to shareholders.
The shareholder of the organisation gets the profit on the basis of their shares (Travis, 2019).
It influences the shareholders to invest in the organisation with the high amount of shares in
order to gain the high amount of returns. The owners are also able to expand the business by

LIMITED LIABILITY COMPANIES 3
investing the high amount of capital in the organisation. It is observed that the organisation
gain the profit by implementing the limited liability structure.
Advantages and Disadvantages
It is a fact that the each and every concept has their own pros and cons as well the concept of
limited liability also has two aspects. Limited liabilities companies follow the structure in
which the owners are not personally liable to pay the liabilities amount of the organisation.
The advantages of the organisation are discussed below in details:
Flexible Tax Structure
The LLC Companies has the option to select the tax payment method to pay the tax amount
such as sole proprietorship, partnership, C Corporation or S Corporation. The income of
flow-through entity is considered as the income of its owners. It means the owners of LLC
are able to avoid the double taxation. In the double taxation, the employees pay their tax
amount on their salaries and the companies also has to pay the tax. But as per the limited
liability structure, the organisation does not have to pay the tax doubled. The amount of
income is taxed at the corporate level. The owners of the organisation get the good amount of
dividends as the company avoid the double tax payment (CFI, 2018).
Protection
Protection is the main advantage of this concept. In this concept, the discussion is made on
the shareholders who are considered as the owners of the organisation. The owners are
protected from the risk of paying the personal asset in the exchange of liability amount. If the
employees founded to conduct the illegal work are punish by the company but the
government takes the legal action against the organisation not the employees as same with the

LIMITED LIABILITY COMPANIES 4
shareholders (Owners). The owners are not able to pay the personal liabilities of the
organisation (Clough, Sears, Sears, Segner, and Rounds, 2015).
Disadvantages
The limited liability companies also suffer with the disadvantage and these are describes
below:
Fees and Taxes
The company has the advantage that it can avoid double taxation system. But it is observed
that the company has to pay self-employment taxes. The taxes of the organisation can paid
twice as the owners can be employee and employer (Legal Zoom, 2018).
Regulations
Limited Liability Company is governed by state law that can drastically change. The
company faces the issue due to changing the law. It is observed that the company implement
this structure with the rules and regulation made by the state law. The government is change
in specific period of time as they can change the rules and regulation which is developed by
the old government. It is a major disadvantage of Limited Liability Companies as they are in
the risk of changing the rules and regulation (Baum, Caglayan, and Rashid, 2017).
Illustration
It has been evaluated that the many organisation implement the limited liability structure in
order to minimise the risk and protect them from paying amount of liabilities. It is observed
that the different country has different rules and regulation of implementing the limited
liability structure in the organisation. In this report, the structure of Bahrain and USA will be
discussed in order to compare them. These are discussed below:

LIMITED LIABILITY COMPANIES 5
Limited Liability in Bahrain
In Bahrain, Limited Liability Company is a company in which the partners have the
responsibility to pay debts and liabilities. It is essential for the company to have the 2 and 50
number of shareholders. It is required to have the minimum 2 directors and 2 shareholders to
operate the business in the market. There is a law in the country (Bahrain) that if the number
of partners of organisation is falls down below two, then the company has the responsibility
to introduce the new shareholders within the 30 day period (Business Setup, 2018). They can
also convert the company into the single person company, or process to dissolution as there is
less number of partners in the organisation. The provision law of the country states that the
limited liability company cannot issue the public shares, debentures, or negotiable warrants.
It is observed that the Limited Liability is most commonly used by the business entity by
foreign entrepreneurs for setting up a business in Bahrain. The main reason of implementing
this structure by the organisations of Bahrain is that there are fewer requirements to pass the
resolutions than the other business structure. The Limited Liability Company does not require
to invites and obtain the approval of the ministry of industry and commerce. It is also not
essential to take the approval from the ministry of industry in order to hold the annual
meetings in the company. As per the laws and provisions, the Limited Liability Company has
the flexibility to operate the business with the low capital. It has been founded the company
can operate the business with low capital such as BD1, 000 or BD2, 000 as per the nature of
business.
It is observed that there are some features and rules that are necessary for limited liability
Company to operate the business in the Bahrain Market. It is not required for the company to
have local sponsorship for organisation that means100% of foreign ownership is allowed.
The second requirement which is essential is that the organisation has to minimum 2 directors
and 2 shareholders. The other rules and regulation of the country is that the company is not

LIMITED LIABILITY COMPANIES 6
permitted to engage in banking or insurance business activities or investing funds on the
behalf of third parties. It is essential for the company to submit annual audited financial
statements to the board of directors. It is observed that the organisation requires the external
auditor to evaluate the financial position. The main requirement of the company is to have the
local office in the Bahrain market. These are the essentials for the limited liability company
has to follow the rules and regulation (Business Setup, 2018).
For example-
There are few companies in Bahrain who registered as LLCs such as Miraj Graphics WLL,
Projects Holding Company WLL, Bahrain Foundations Constructions Company WLL, etc.
Bahrain Foundations Constructions Company WLL is an appropriate example of Limited
Liability Company which is established in the capital of Bahrain. The company implements
all the rules and regulation of LLCs in order to protect the Bahrain.
Limited Liability in other countries
In the US, the limited liability company is considered as the business structure for owners of
small businesses to create. The owners of the company have the advantage of the business
structure including taxation and separation of personal and business assets for owners. There
are some regulations for LLCs in the US that is mandatory for the organisation to follow it. In
US, the some regulations are relies on the states. There are some standard rules that all states
apply with the similar requirements. It is observed that the owners of the limited liability
companies have on-going tasks to do to keep all of the LLC’s protections and advantages in
effect. As per the provisions law of US, Limited Liability Company has to use the LLC ltd. in
their name while establishing the business.
There are some mandatory rules and regulation that the company of US has to follow to
survive for long time. LLCs can have an unlimited number of members or one member can

LIMITED LIABILITY COMPANIES 7
also be able to operate the business. Single member of LLCs are now allowed in the every
states of US. The other regulation that the organisation has to follow is that the LLCs may be
owned by individuals other than LLCs, foreign organisations or corporations. The board of
director is not required for any LLC as per the US provisions (Skinner, 2015). In US, Limited
Liability Company can manage by their members or by non-members of the organisation.
Although, it is observed that the some states of US has the rule that one manager is required
who is also a member of the organisation. It is also a rule that a single member LLCs wants to
leave the organisation then the Company has to be dissolved and re-formed with the new
members.
For example-
There are many LLCs companies in US that implement the rules and regulation which is
developed by the state government such as Blackberry, Pepsi-Cola, Nike, IBM, etc. Nike is
the manufacturing company that design and sales the footwear, apparel, accessories, and
services. Nike fulfils all the requirements of LLCs and operate with the high brand image in
the US market (Reuters, 2018).
Comparison
By comparing the rules and regulation of the countries in order to implement the business
structure of LLCs. In Bahrain, it is required to have the 2 partners to operate the business but
in US the organisation does not require to have minimum 2 members. The company can
operate the business with the single members.
It has been evaluated that the Bahrain has more flexibility in terms of implementing the
concept of LLCs in the organisation as compare to US. In Bahrain, the company can establish

LIMITED LIABILITY COMPANIES 8
their business with the capital of BD1, 000 or BD2, 000 as per the nature of organisation. The
company does not requires to fulfil the large numbers of requirements to establish the
business. But in US, the organisation can enter the market as per the rules and regulation
which is developed as per the states.
Conclusion
From the above analysis, it has been concluded that the limited liability company is beneficial
for the companies in order to gain the success. It is observed that the different countries have
different rules and laws to implement the concept of Limited Liability Company. In this
report, Bahrain and USA has been taken into consideration to analyse the different ways to
implement the concept at the workplace. In Bahrain market, the company does not have to
fulfil the large number of requirement. But in the case of US, thee companies has to fulfil the
large number of requirements. At the end, it is concluded that the Bahrain is more flexible
than the US in terms of establishing the Limited Liability Company in the country.

LIMITED LIABILITY COMPANIES 9
References
Baum, C.F., Caglayan, M. and Rashid, A. (2017) Capital structure adjustments: Do
macroeconomic and business risks matter?. Empirical Economics, 53(4), pp.1463-1502.
Business Setup. (2018) With Limited Liability Company in Bahrain. [online] Available from:
https://www.businesssetup.com/bh/bahrain-with-limited-liability-wll
CFI. (2018) What is a Limited Liability Company (LLC)?. [online] Available from:
https://corporatefinanceinstitute.com/resources/knowledge/strategy/limited-liability-
company-llc/ [Accessed 20/7/19].
Clough, R.H., Sears, G.A., Sears, S.K., Segner, R.O. and Rounds, J.L. (2015) Construction
contracting: A practical guide to company management. John Wiley & Sons.
Imc. (2018) Company Formation in Bahrain. [online] Available
from:https://intuitconsultancy.com/bh/company-formation-in-bahrain/ [Accessed 20/7/19].
Legal Zoom. (2018) Definition of a Limited Liability Company or LLC. [online] Available
from: https://www.legalzoom.com/knowledge/limited-liability-company/topic/limited-
liability-company [Accessed 20/7/19].
Reid, W. (2018) The meaning of company accounts. Routledge.
Reuters. (2018) Nike Inc (NKE.N). [online] Available
from:https://www.reuters.com/finance/stocks/company-profile/NKE.N [Accessed 20/7/19].
Schell, J.M. (2018) Private equity funds: Business structure and operations. Law Journal
Press.
Skinner, G. (2015) Rethinking Limited Liability of Parent Corporations for Foreign
Subsidiaries' Violations of International Human Rights Law. Wash. & Lee L. Rev., 72,
p.1769.
Talbot, L. (2015) Critical company law. Routledge.

LIMITED LIABILITY COMPANIES 10
Travis, A. (2019) The Organization of Neglect: Limited Liability Companies and Housing
Disinvestment. American Sociological Review, 84(1), pp.142-170.
Upcounsel. (2018) Well Known LLC Companies: Everything You Need to Know. [online]
Available from: https://www.upcounsel.com/well-known-llc-companies [Accessed 20/7/19].
Weebly. (2018) The importance of limited liability. . [online] Available from:
http://tcsbusiness.weebly.com/the-importance-of-limited-liability.html [Accessed 20/7/19].