Offshore company
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An offshore company is one which does not conduct substantial business in its country of incorporation. They are sometimes known as non-resident companies.
Contents
Benefits
Offshore companies may bring a number of benefits to individuals or companies.
- Taxation - business may be structured so that profits are realized in ways that minimize their overall tax liability.
- Simplicity - except for regulated businesses, such as banks or other financial institutions, some jurisdictions make it relatively simple to set up and maintain companies.
- Reporting - the level of information required by the registrar of companies varies from jurisdiction to jurisdiction.
- Asset protection - it is possible to organize assets and transactions in such a way that assets are shielded from future liabilities.
- Anonymity - by carrying out transactions in the name of a private company, the name of the underlying principal may be kept out of documentation. Having said that, current anti-money laundering regulations often require banks and other professionals to look through structures.
- Thin-capitalisation - offshore jurisdictions tend not to impose "thin-capitalisation" rules on companies (except for regulated entites such as banks and insurance companies, allowing them to be formed with a purely nominal equity investment.
Features of offshore companies
- Memorandum and articles of association or bylaws - these documents are fundamental to the existence of the company, and detail the rights of the members, the objectives of the company and the internal processes the company.
- Certificate of Incorporation - this is issued by the Registrar of Companies, and is proof that the company has been brought into existence. Other information may be necessary to prove that the company has not been liquidated or struck off.
- Registration Agent - it is normal for an agent to be appointed in the jurisdiction in which the company is incorporated for the purpose of dealing with official communications with the registrar.
- Registered Office - this is the official address of a company, to which official documents are sent and legal notices received. It is normal for the registration agent to provide a registered office. A company may have other business and correspondence addresses.
- Members - these are the legal owners of the company. For administrative simplicity, or for anonymity, a corporate service provider may supply nominees who will hold shares on behalf of a beneficial owner, and act on his instructions.
- Directors - the individuals who manage the day-to-day affairs of company. In many jurisdictions it is possible for companies to be directors of other companies. Corporate service providers in offshore jurisdictions will often provide directors, provided they are able to control, and be satisfied with, the activities of the company. The company is generally considered to be resident for tax purposes at the place where the decisions are made.
- Shadow directors - in some cases, it has been shown that the formally appointed directors merely act as the alter ego of others, blindly following their instructions. In these cases, the courts have considered the those instructing the named directors really control of company, and that the named directors merely rubberstamp decisions. Companies managed in this way run the risk of being deemed to be resident in the jurisdiction where the shadow director is resident. Unpredictable tax consequences may follow.
- Company Secretary - this is the person who is responsible for ensuring that the company meets its statutory obligations. Corporate service providers often provide this service.
- Statutory Records - a company is obliged to maintain registers setting out certain information about the company. The mandatory records vary from jurisdiction to jurisdiction, as does the level of public access to the information contained in the records. Many jurisdictions require that the records are kept within the jurisdiction in which the company is incorporated. The records required may include minutes of meetings, registers members, directors, officers and charges.
- Bookkeeping - directors are generally required to keep proper records. They may be required to prepare audited accounts. Specific requirements in very between jurisdictions and may depend on the nature of the company's activity. For example all banks will need to prepare audited accounts, whereas a private investment company may not have such an obligation.
Types of company
Examples of offshore companies include the Limited Liability Company (LLC) and the International Business Company (IBC).The following types of company are common in offshore jurisdictions:
- Company having a share capital - these companies issue shares. Once the initial cost of a share (capital and premium) has been paid, the shareholders have no further obligation to the company. The shares may, subject to the rules of the company, be sold or transferred, and the shareholders have the right to enjoy the profits of the company or any proceeds of a liquidation.
- Company limited by guarantee - the members of the company agree to pay up to a maximum limit an event that the company becomes insolvent. They may acquire certain rights against the company, such as the rights to a dividend and the specific rights will be set out in the rules of the company. Membership may terminate on death, and guarantee companies have been used for not for profit organizations. There are also sophisticated estate planning schemes which make use of guarantee companies.
- Protected cell companies - some jurisdictions permit cellular companies, where particular assets and liabilities are segregated into "cells", in such a way that the assets of one cell cannot be used to satisfy the liabilities of another. Cell companies are particularly used for umbrella mutual funds or unit linked insurance bonds.
Merger
The traditional method of merging companies is for one company to acquire the assets of a subsidiary on its liquidation. This sometimes creates contractual difficulties, and requires third parties to accede to the transfer of obligations from the liquidated company. Some jurisdictions have tackled this issue by permitting companies to merge, forming a new combined entity, which represents a continuation of the businesses of each former company.
Relocation of companies
Some jurisdictions permit companies to redomicile. They may do this to take advantage of particular features of the new jurisdiction, such as merger legislation, or tax treaties with other countries. The law in both the old and new jurisdictions must permit redomiciliation. The business of the company is deemed to continue without interruption on redomiciliation.
Offshore jurisdictions
It is possible to incorporate offshore companies in many jurisdictions. The following list is not exhaustive.
- Anguilla
- Bahamas
- Barbados
- Bermuda
- British Virgin Islands
- Cayman Islands
- Cook Islands
- Cyprus
- Delaware
- Gibraltar
- Guernsey
- Hong Kong
- Isle of Man
- Jersey
- Labuan
- Mauritius
- Monaco
- Netherlands Antilles
- Nevada
- Panama
- Singapore
- Turks and Caicos Islands
- United Kingdom
See also
- Offshore bank
- Offshore Financial Centres
- Tax avoidance and tax evasion
- Tax haven
- Tax resistance
- Underground economy
External links
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