A brief guide to the features, benefits and types of offshore company available.
Answering the questions everyone asks about the formation of offshore companies.
From “What is an offshore company?” to “What’s the point of establishing one?” this article covers everything you need to know.
What is an offshore company?
An offshore company is one which rarely conducts business in its country of incorporation.
Another name for this type of company is ‘non-resident company’.
What’s the point of establishing an offshore company?
There are many features and benefits associated with the establishment of an offshore company, and different individuals and organisations have their own specific reasons for the incorporation of a non-resident company.
The five main general benefits are: -
1) Reduced Taxation Liability - some businesses can be structured in such a way that any profits generated are realised in ways that minimise overall taxation liability.
2) Simplicity of Operation - apart from certain types of business which are internationally regulated - e.g., banks or financial services companies - certain jurisdictions make it simple to set up and run all other types of company.
3) Fewer Reporting Requirements - the extent to which company information is required to be reported is generally far lower in most offshore jurisdictions.
4) General Asset Protection - it is possible to manage assets and business transactions in such a way that assets are shielded from any form of liability.
5) Greater Degrees of Anonymity - by conducting business through the offshore company and carrying out all transactions in the name of the private company, the name of the underlying principal of the company can be kept out of certain key documentation.
What types of offshore company are available?
The following three types of company are the main types on offer in the offshore jurisdictions most commonly used for offshore company formation: -
1) Company having a share capital - These companies issue shares, and once the initial cost of a share (both capital and premium) has been paid, the shareholders have no further obligation to the company.
Subject to the rules of the individual company from this point on the shares can be sold or transferred, and the shareholders have the right to enjoy any profits from the company and any proceeds of a liquidation.
2) Company limited by guarantee - the individual members of the company agree to pay up to a maximum ‘limit’ in the event that the company becomes insolvent.
The members may acquire certain rights against the company, such as the right to take a dividend and all the specific rights will be set out in the rules of the company upon its incorporation. Membership of the company may terminate on death, and this type of company, also called ‘guarantee companies’, have been used by many ‘not for profit’ organisations.
There are also some highly sophisticated estate planning schemes in place which make use of this type of guarantee company to limit the death taxation liability an individual’s estate will suffer.
3) Cell companies - some jurisdictions permit the formation of cellular companies. The assets and liabilities of this company type are separated into “cells”, in such a way that the assets in one cell cannot be used to satisfy the liabilities of another cell.
