We provide comprehensive services and consultations on establishing a business in Guam.
For immediate questions or assistance regarding business establishment, please contact our attorney at the following:
Usual forms of business you can establish in Guam are stated below:
1. Sole Proprietorship
A Sole Proprietorshipis a business with a single owner. You can only form a sole proprietorship by obtaining a business license; no separate forms need to be completed. This is easy to manage; additionally, you do not have to file taxes for the business from your individual tax filing. Your individual and business incomes will be considered the same (although self-employment taxes will apply).
A sole proprietorship does not require formal financial statements, but the business owner has to set up a separate business checking account.
A disadvantage of a sole proprietorship is that the business owner is personally liable for all debts and actions of the business, without limited liability protection. This risk can be reduced by purchasing a business insurance policy
2. General Partnership and Limited Partnership
A General Partnership is formed by two (2) or more persons who are considered co-owners of a business.
A Limited Partnership (LP) is similar to a general partnership, except that it consists of “general partners” (GPs) and “limited partners” (LPs). The GP’s have management control of the LP, and are legally responsible for the conduct of the business, while the LP’s liability is limited to their investment in the partnership but they do not have a right to exercise management control of the LP.
3. Limited Liability Partnership
A Limited Liability Partnership (LLP) is a partnership in which all partners have limited liability. In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from that of a limited partnership where the general partners are legally responsible for the conduct of the business.
While the owners in an LLP have limited liability protection, the number of partners is restricted.
4. Domestic Corporation (formed by three (3) or more persons
To form a corporation in Guam, an“articles of incorporation” and “by-laws” must be filed with the Guam Department of Revenue and Taxation (DRT).
The advantages of a corporation include the following:
- The business owners’ liabilities are limited, meaning that they are not personally liable for the liabilities of the corporation, unless it can be proven that the company was negligent.
- The business owners can easily sell their ownership (shares) of the company.
- A board of directors can be appointed and manage the business of the corporation.
However, the disadvantages of a corporation are:
- Extensive and difficult government regulations to abide.
- It is expensive to establish and maintain.
- The business owners are subject to double taxation, because the profits of the corporation become taxed, and after the remaining amount of profit becomes distributed to each owner, the owner must pay personal income tax on the amount of distribution they received.
5. Limited Liability Company (LLC)
A Limited Liability Company (LLC) is a corporate structure in which the business owners are not personally liable for the company's debts or liabilities.LLC combines the characteristics of a corporation with those of a partnership or sole proprietorship.
The owners of an LLC are generally called “members.”
A disadvantage of an LLC compared to a regular corporation is that an ownership in an LLC cannot be publicly traded, whereas a share in regular corporation can be traded.
However, one of the advantages of an LLC is its ability to reduce the payment of Medicare premiums and Social Security taxes. Normally, a business must pay the Medicare premiums and Social Security taxes on its profit.However, for an LLC, it is possible to reduce these payments by choosing to be taxed as an “S Corporation” under Subchapter S of Chapter 1 of the Internal Revenue Code.In such cases, the LLC can pay a part of its profit as a “salary” to its members so the Medicare premiums and Social Security taxes will be imposed only on the remaining part of the profit after paying the salary.
However, this will be an advantage to the business only if the total amount of profit generated is higher than the amount of salary.
To form an LLC in Guam, articles of organization and operating agreements must be filed with the Guam Department of Revenue and Taxation (DRT). The articles of organization are similar to articles of incorporation in a regular corporation, and the operating agreement is similar to a regular corporation’s by-laws. DRT then issues a Certificate of Incorporation.
All of the above-mentioned businesses, other than the sole proprietorship, must be registered in the government office.
A major difference between the general types (General Partnership and Domestic Corporation) and the limited types (Limited Liability Partnership and Limited Liability Company) is that, as mentioned above, there is no “double taxation” for the limited types, meaning that the tax will not be imposed on both the business income and the partner/shareholder’s dividend from that income.
6. Foreign Corporation
To establish a Foreign Corporation, a statement verified under oath providing the following information must be filed:
- The name of the corporation
- The purpose for which the corporation was organized
- The location of the principal or home office of the corporation
- The capital stock of the corporation and the amount of the subscribed stock
- The name of the resident agent authorized by the corporation to accept summons and process in all legal proceedings against the corporation and of all notices affecting the corporation.
- A certified copy of the Articles of Incorporation
After registering the business, a business license must be obtained before starting business operations.
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