Types of entities available offshore

Types of entities available offshore

Types of entities available offshore

In typical offshore jurisdiction, the types of entities available often include the same entities (like various types of companies and partnerships) which are available elsewhere. They may however have different characteristics & regulations and may be treated differently by local law than the same entities in other countries. While companies are the most popular vehicles used offshore, we can also mention various types of partnerships, trusts, foundations, collective investment schemes, investment funds, shipping companies, and some more.

I will not be describing the use of specific entities here or specifically describe each entity, however I will post another separate topics on these some time in the future.

Companies – the most popular and commonly used entity. Two main types of companies in general are private companies and public companies. They usually have limited liability. Private companies are the companies can be used for many purposes, but their shares are not available to public (cannot be listed on stock exchanges). Like the name suggests, public companies are widely available to the investors and can be listed on stock exchanges (however do not have to).

Public companies and different types of private companies with the exception of private company limited by shares will be skipped in this post as they are not very commonly used and usually not attractive in terms of taxation and possibilities of their use.

Famous LTD is widely used across the globe and has the highest significance in offshore industry. In most of the cases shareholders and the management do not hold any personal liability like it is in case of partners of some partnership types. There are certain exceptions however which prove that personal liability might be an option.

Private limited company usually consists of shareholders (owners/members) and directors (managers, very often also shareholders). In some jurisdictions it also might be required by law for a company to have a secretary(do not confuse with receptionist/assistant) or some supervisory body.

There might be ten or hundreds uses of an offshore company depending on individual needs or situation, however the favourite ones are holding of investments, trading, providing services, sales of assets.

The requirements for various matters like audit/reporting/accounting/disclosure of information, etc. vary from jurisdiction to jurisdiction. Companies however are the most ‘serious’ forms of business and the laws (legal regulations, tax laws, compliance regulations, …) governing them might be very strict, at the same level for non-residents and also for residents and people using the companies locally for ordinary business purposes.
The taxation as well as legal regulations vary from jurisdiction to jurisdiction, however as mentioned in some other posts, the rules for non-residents are basically more beneficial tax-wise than for the residents.

Trusts – it is an agreement in which the settlor (owner) transfers some/all assets to the trustee(the person/entity managing the trust – usually fiduciary firm), who manages and holds the assets for the beneficiaries specified by settlor.

It might sound complicated, but it is very simple vehicle. Trust is perceived as an entity, however it is not a body corporate and it does not have a legal personality (as it is just a form of agreement). Considering this, it is not listed anywhere and does not appear in any registries.

Trusts have many uses in tax planning and wealth management and are generally not expensive & difficult to set up and manage. It is very interesting vehicle used for asset protection, inheritance planning, wealth management, pensions management and other uses. They are also used by companies as a part of their structures created for tax avoidance.

It is vital to mention that although they can be incorporated for almost anyone, foreign trusts are not recognised by all jurisdictions (especially not in many civil-law jurisdictions).

Foundations – foundations are very specific entities, some could say a mixture between a company and a trust.

I would guess that most of the people thinking about foundations would think about charities and NGOs. While there are many foundations which have the role of a charity or generally work not for profit, foundations are also used for commercial purposes, mainly for asset protection and tax planning.

The main uses of the (private) foundations might include (but not be limited to) asset protection, management of family assets, holding shares or investments, inheritance planning.

The parties acting in foundations are commonly: the founder (owner, creator), foundation council (which has the managing function), protectors (supervisors) and the beneficiaries.

Foundations are usually not subject to taxation (with some exceptions) and can have a separate legal personality and no requirement for financial reporting to the authorities. The most common type used commercially is private foundation.

Partnerships — they are legal arrangements between partners (individuals or companies) created for doing business or some specific for-profit purpose.

As there are many and various types of foundations around the world, it is pointless to describe each of them here. We can mention some popular types like Limited Liability Partnership, General Partnership, Limited Partnerships, etc.

The liability of partners in partnerships vary in each type of partnership. Generally at least one partner is personally liable for actions of the partnership.

While partnerships are most commonly used entities by local businessmen (especially for businesses as law firms, advisory firms), they are also used offshore. In most of the cases however they are not the only vehicle in the structure. They usually have an additional role in the structure allowing for certain benefits (e.g. being an additional vehicle used to reduce taxation on payments of profits from the offshore company to its owner).

Investment Funds – vehicles created for the purpose of investments. Often formed as company/partnership/trust and regulated by additional investment funds’ regulations. They might be set-up as independent companies or might have a form of collective investment schemes. Investment Funds are not the most common type of vehicles used as they are usually expensive to set-up and administer and require strict regulations.

Due to the complexity and regulations of investment funds, very often the investors decide to incorporate a simpler machine like e.g. a limited company which can hold investments and keep the same tax benefits, being cheaper to manage at the same time.

The above is not the comprehensive list of all existing vehicles used offshore, but is a description of vast majority of the most important types of ‘products’ being used.

As always, it is recommended to obtain a professional advice before deciding for a set-up of any structure.