Offshore company

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An offshore company is a company which is incorporated outside the jurisdiction of its primary operations. Offshore companies are sometimes known as non-resident companies. An offshore company is of three characteristics as follows. First, it should be incorporated under the offshore companies regulations of relevant offshore jurisdictions. Second, it should be incorporated by incoporators outside the offshore jurisdiction where it is incorporated. Last, it should not conduct substantial business within the offshore jurisdiction where it is incorporated.

Contents 1 Benefits 2 Disadvantages 3 Features of offshore companies 4 Types of companies 5 Merger 6 Relocation of companies 7 Offshore jurisdictions 8 Buenos Aires ban of offshore companies 9 References 10 See also

[edit] 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.

• Legal protection - some jurisdictions have stricter provisions for allowing a court to pierce the corporate veil, and in many cases, corporate governance rules require the laws of the jurisdiction where the corporation is chartered, rather than where it is sued, to apply.

• Fees - some jurisdictions impose much higher fees to incorporate than other jurisdictions. They may also impose much higher maintenance fees on a corporation's yearly renewal of its charter.

• 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 entities such as banks and insurance companies), allowing them to be formed with a purely nominal equity investment.

• Financial assistance - offshore companies are usually not prohibited from providing "financial assistance" for the acquisition of their own shares, which avoids the needs for "whitewash" procedure in certain financial transactions.

[edit] Disadvantages

• Offshore companies are usually prohibited from conducting business or retaining employees in their jurisdiction of incorporation.

• For regulatory reasons, there are often certain restrictions on the type of business which an offshore company can engage in. For example, it is quite common for there to be general prohibitions against offshore companies engaging in banking business, insurance business or operating as a trust company.

• Because of the limited amount of publicly available information in connection with offshore companies, there is usually a certain amount of due diligence required. For example, to open a bank account in the name of an offshore company, to comply with relevant anti-money laundering regulations, the bank will normally require documents verifying the identity of the signers on the account to be notarised and may require one or more professional reference letters from an attorney, accountant and/or banker who has known you.

• Certain countries have "anti-tax haven" legislation which makes it difficult to conduct business in those countries using an offshore company. For example, capital markets regulations in France prohibit using offshore companies as bond issuing vehicles.

• Where a shareholder of an offshore company dies, it is usually necessary to have the will admitted to probate in the offshore jurisdiction as well (or, if intestate, to have the letters of administration re-sealed in that jurisdiction), which can add to cost, delay and inconvenience in administering the deceased's estate.

[edit] 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 of 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.
• Registered 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.
• Shareholders (for IBC's) or Members (LLC's) - 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 (for IBC's) or Managers (for LLC's) - 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 that 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 vary 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

[edit] Types of companies

Examples of offshore companies include the International Business Company (IBC). More recently new legislation has been enacted in a number of Jurisdictions, such as the British Virgin Islands, to replace the IBC type of company with the Business Company (BC).

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.

However, many offshore jurisdictions offer increasingly specialised forms of companies (as well as specialised trusts and partnerships seeking to increase their share of the market. Examples include limited duration companies, unlimited liability companies, companies limited by guarantee and with a share capital, restricted purpose companies and hybrid entities such as limited liability partnerships, which are more akin to companies to actual partnerships, and foundations, which are nominally trusts but are more akin to companies than trusts.

[edit] 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.

[edit] 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.

[edit] Offshore jurisdictions

Main article: List of offshore financial centres

It is possible to incorporate offshore companies in many jurisdictions. The following list is not exhaustive.

• India
• Ahmedabad
• Anguilla
• Bahamas
• Barbados
• Belize
• Bermuda
• British Virgin Islands
• Cayman Islands
• Cook Islands
• Costa Rica
• Cyprus
• Delaware (see also Delaware General Corporation Law)
• Dubai
• Gibraltar
• Guernsey
• Hong Kong
• Isle of Man
• Jersey
• Jordan
• Labuan
• Lebanon
• Mauritius
• Monaco
• Netherlands Antilles
• Nevada (see also Nevada corporation)
• Panama
• Seychelles
• Turks and Caicos Islands
• United Kingdom

[edit] Buenos Aires ban of offshore companies

Following the 2004 República Cromagnon nightclub fire in Buenos Aires, Argentina, it was discovered that the club was owned by shell corporations. Ricardo Nissen, Inspector General of Justice for Buenos Aires, subsequently froze $20 million, and then banned offshore corporations from Buenos Aires which can not prove they have real activity in the city. Such a ban is the first to be implemented world-wide ^[1].

[edit] References

Zhang shiwei, Offshore Company: Introduction, regulations& Operation(Chinese), China Law Press, 2004

[edit] See also

• Flag of convenience (business)
• Quasi-foreign corporation
• Offshore bank
• Offshore Financial Centres
• Private foundation
• Tax avoidance and tax evasion
• Tax haven
• Tax resistance
• Underground economy
• Liquidation