OFFSHORE COMPANY FORMATION
OFFSHORE COMPANIES LEVELS OF SERVICES
An offshore company can be configured with a number of optional services. This resembles ordering a new car – by installing certain optional equipment it gets safer, more comfortable and more useful. It is important to choose the right configuration that suits You best. There is no universal recipe – each person and his business situation is different. What suits one client perfectly can be dangerous for another.
A properly configured and managed offshore company can provide substantial tax benefits, protect assets, improve business efficiency, reduce costs and maintain confidentiality. An improperly configured offshore company is a recipe for disaster for the owner and his business. In this guide we have explained the various additional offshore services in a straightforward and easy-to-understand manner. GENERAL COMPARISON
The necessity for some or all of the optional services will always depend on the actual circumstances of each client. These should be considered before placing an order for incorporation. The company structure may include the following services:
| BASIC COMPANY |
COMPLETE COMPANY |
o Initial incorporation
o Registered Address
o Registered Agent |
o Initial incorporation
o Registered Address
o Registered Agent
o Nominee Shareholder
o Third-party Director
o Account Signatory
o Mail & fax forwarding service
o Document re-mailing service
o Telephone confirmation service |
Client definition.
In the following descriptions “Client” means the real, beneficial owner of the company or the person who has requested us to form the company, or any other persons whom the beneficial owner has designated or involved in the company structure in any capacity, all such persons being independently introduced by the client himself and NOT controlled or employed by us.
GROUND LEVEL - BASIC COMPANY This is the simplest configuration available. A Basic Company would only have the minimum of services provided. Apart from registering the company in the first place and preparing its documents, the only ongoing services are the Registered Address and Registered Agent.
Registered Address and Agent are the mandatory minimum domiciliation services. Any International Business Company is required by the law to have a local address (Registered Address) and a legal Agent in its country of incorporation. The Registered Agent essentially serves as an intermediary between the owner of the company and the Government. In this capacity the Agent arranges for the formal annual renewal of the Company with the Government Registrar. This service is provided by us as standard, as without it, the company can not legally exist.
Shareholder.
In a Basic Company, the actual client would be directly registered as the Shareholder and the Director. Thus, the client would clearly and publicly appear as the owner and controller of the company. The information of who is the registered shareholder and director of an IBC is not confidential! Even if this information is not directly filed at the Government Registrar, the register of shareholders and directors must by the law be always available at the Registered Address for public inspection by anyone. So, it is public information, freely available.
Such total lack of owner confidentiality may cause several legal problems. Being directly registered as a shareholder to an offshore company makes the person clearly linked to that company. This may cause punitive taxation if such offshore company enters into business with the domestic company of the same client (the concept of “related enterprises”). It may also involve the client being requested to report and pay tax on his personal income from such foreign shareholding.
Director.
With a Basic Company the client would also serve as a Company Director. In this official capacity the actual client would fully and personally operate the company – sign in bank accounts, issue invoices, sign all contracts and correspondence. Similarly as with being a shareholder, serving as a Director to an offshore company raises serious legal problems. Again, the offshore company may be considered as legally “related” to the domestic firm of the client. Serving as a Director of an offshore company raises the important legal question of the place of management and control of the company. Many high-tax countries will consider that any company becomes taxable where it is managed and controlled – and this is usually where the company Directors reside.
So, if the client serves as a Director of an offshore company, he may be requested that his offshore company reports and pays full domestic tax on its worldwide income. This would usually defeat the whole purpose of having an offshore company.
Communications.
With a Basic Company the client would be unable to use the address of the Company for receiving or sending out any routine business correspondence, because the Registered Address is not intended for that purpose. The Registered Address does not include any local telephone or fax number for use by the Company. Therefore, the owner of such Company would have to use his own personal or business facilities to conduct correspondence for his offshore business. This could facilitate confusion and would also clearly identify the Company as really “offshore”.
While having all of these drawbacks, the Basic Company may still be useful for some selfemployed globally-mobile individuals who would use the offshore company merely as a separate corporate body to conduct their international activities. In some circumstances such owners may afford not be concerned about being openly registered as shareholders and directors of an offshore company. In these special cases, they would enjoy minimum maintenance cost and and a very straightforward company structure.
For anyone else a proper management system of the offshore company should be established. This can include the services of a nominee shareholder, a third-party director, an account signatory and various communications services.
OPTIONAL SERVICE DESCRIPTIONS NOMINEE SHAREHOLDER
How it works?
The shares in the company are formally registered in the name of an unrelated third party - a nominee, which is provided by us. It would usually be another corporate body (a company), wholly controlled by ourselves, or our trusted partners, created and used solely for this purpose.
Client security is maintained by special additional documents which clearly establish the real ownership rights. Such documents may include a nominee services agreement, a trust declaration or a preissued set of share certificates and share transfer forms. These documents remain strictly confidential.
What it solves?
A nominee shareholder shields and protects the client during any possible public inquiry from showing up as the owner of the company. Thus, the client is formally distanced from his offshore company at the ownership level. At the same time, the client can prove himself as the owner of the company whenever he chooses, by way of producing the supporting confidential documentation.
What it costs? usually USD 300 per year.
THIRD-PARTY DIRECTOR
How it works?
An unrelated third party, provided by us, is registered and serves as Company Director. It can either be a private individual, or a corporate body (management company).
Depending on clients’ business circumstances, the Director would carry out various regular tasks for the Company – like preparation and issue of documents, correspondence, invoicing. At the same time functions of the company management can, if necessary, be flexibly assigned to the client personally, by means of Powers of Attorney or Resolutions.
Client security and control is maintained by special additional documents. Such documents may include a management services agreement and a pre-issued letter of resignation. These documents remain strictly confidential.
What it solves?
A person, unrelated to client, appears as Company Director during any possible public inquiry. Therefore the client does not fall into the “management and control” trap by his home-country taxation. Further regular involvement of the third-party Director in the actual business of the Company will sustain the independent operational image of the Company. At the same time, the client can prove himself as the actual controller of the company whenever he chooses, by way of producing the supporting confidential documentation.
What it costs?
Usually USD 300 fee per year for a corporate director. Depends on the jurisdiction.
Usually USD 900 fee per year for a private individual director.
In addition, USD 40-100 per hour for time spent while attending to the various management matters of the Company, plus actual expenses and costs. The total amount of a yearly maintenance depends on the total volume of work delegated by the client to the Director.
ACCOUNT SIGNATORY
How it works?
An third-party Director also acts as a signatory in a Company bank account, operating under instructions received from the client. This function is carried out under the general framework of the thirdparty Director service. The underlying client security documentation is the same. Instructions are provided by the client to the Director in a pre-agreed and secured form of transmission.
What it solves?
The bank account is the most vulnerable element of the Company. This is because any hostile inquiry will primarily focus on the financial trail of the Company and on persons who control these funds. Under some legal circumstances the banks may divulge account information, therefore it is not wise to rely solely on the concept of bank secrecy. If the person having the signatory right in the bank happens to be the real client, it’s a clear link and evidence towards his actual control of the Company itself.
By engaging the services of the third-party Director to act as account signatory, the client becomes completely protected from revealing himself as the actual beneficial owner of the Company. To any outside parties, the Client appears completely unrelated to the Company and his confidentiality is fully protected. At the same time, the client can prove himself as the actual controller of the company whenever he chooses, by way of producing the supporting confidential documentation.
What it costs?
USD 1000 per year (Available only together with the third-party Director service.)
VIRTUAL OFFICE FACILITY
How it works?
The Company has an operational business address in the country of incorporation, including fax and telephone. Mail and phone messages are received and handled for the Company. Documents can be prepared and re-mailed according to the instructions of the Client. The services of mail & fax forwarding, document re-mailing and telephone confirmation can be ordered separately, at any time during or after the incorporation. Full description of these services and the applicable rules are in our Virtual Office Service Description and Order Form.
What it solves?
A company without a proper street address, telephone and fax number looks shady and incompetent. Operating from a different address – like, from the Clients’ home – looks suspicious and may involve adverse tax and legal consequences. Virtual Office facility solves that – the offshore company acquires an image of reality and competence. Mailed and faxed correspondence can be received and dealt with safely and confidentially. Telephone calls will confirm the existence of the Company at the given address. For all third parties, the Company will appear to be completely real and ground-based in the country of registration.
What it costs?
Check each jurisdiction for details
NOTES ON DUE DILIGENCE (KNOW YOUR CLIENT) RULES
For many years some clients of offshore jurisdictions would expect to form an offshore company, appoint nominee directors and then be given complete control of the company’s activities so that the offshore service provider would know nothing of the company’s activities.
The advent of the modern legislation to prevent money laundering have caused significant change in this business over the last few years. Today, the offshore corporate manager will need to be completely informed of the identities of his clients and the nature and details of their business.
At the outset the offshore service provider will ask for comprehensive proof of the clients identities and contact details. Thereafter – especially if more advanced offshore services are ordered – the offshore manager will ascertain the client’s goals and will also need to assure itself that a particular structure is not being set up to engage in or hide the proceeds of fraud, corruption and all other types of criminal activity. The manager will also check that proposed activities are not “sensitive”, even if legal, for example arms trading.
Having established the client’s intentions the manager will then agree how a company will operate.
If the offshore service provider is to provide such advanced services as third-party Director or account signatory, it is important for the client to understand that the offshore Directors' liabilities are exactly the same as those of any other director. On an ongoing basis the directors are responsible for the good governance of the Company. Therefore, full co-operation with the Client is essential.
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