What is an offshore company?
Almost every jurisdiction fails to provide a definition of an “offshore company”, in all of their company acts, regulations or ordinances. The classification of companies vary under the regulations of different countries. For instance, commonly used terms for types of companies in the U.S.A would be “Llc or Inc”, in the United Kingdom, the commonly used terms are “Limited or Ltd”, in France “Sarl”, in Germany “Gmbh”, in Itlay “Srl”, etc. are the commonly used types of companies. Any of the following classification may be adopted by these countries:
Private or public company
Local or overseas company
Limited or unlimited company
Listed or unlisted company
Holding or subsidiary company
In practical world, an offshore company is of use to only the person who intends to expand the services of his/her business internationally. From this we can assume that an offshore company is probably one which has been registered under the laws of different countries, provided the law of your country does not govern those countries’ regulations or in other words, has no power to rule those countries. When the term “Offshore Company” is searched in encyclopaedia, we get a definition stating that it is a company that is incorporated following the laws of any country other than the one where its initial operations were conducted.
Why go for offshore?
Usually, international businessmen are more inclined towards opting for an offshore company, as a substitution to getting their companies registered locally. This is advantageous in the following ways:
Benefits of proper taxation: By conducting the business with care, there may be a possibility that the imposed tax on the profits sums up to nearly zero.
Easy process of registration: It is easy to register offshore companies that it can be done in one day. Whereas, some types of offshore companies can be easily registered with only one person.
Availability publically: Public search is permitted by some of the offshore companies, whereas for others, public search is prohibited.
Expenditure on registration: Depending upon the type of offshore company, the cost may vary from hundreds of dollars to thousands of dollars. Hence, offshore companies may be a bit costly, but they provide a range of option for costs.
Requirements of reports: Again, depending upon the type of offshore company, the report about the operations of the company may be regularly prepared and filed or no report may be filed.
Type of liability in an offshore company: Usually, an offshore company belongs to the class of private companies with limited liability. Hence, the shareholders are limited to make a contribution of a limited sum on their shares.
Opting for an offshore company is not a win-win situation. Offshore companies are accompanied with some drawbacks as well. They are as follows:
Arrangement of finance: Lending money from banks is not an easy job for offshore companies. Although they may have a profitable business and may provide their belongings as securities to the banks, yet are reluctant to lend them money.
Offshore bank account opening: Due to the unavailability of public records, it becomes uneasy to setup offshore bank accounts. Moreover, some banks argue that they would not provide the facility of setting up a bank account for offshore companies.
Limitations on nature of offshore business: Usually, the offshore companies are setup for running businesses that involving consultation, international trade, shareholding of other corporate bodies etc. However, there are certain types of businesses that are not allowed to carry out under an offshore company. The businesses related to finance, trust and insurance are examples to it.
Which are the best jurisdictions for offshore companies?
Not all jurisdictions are suitable for an offshore company formation. The jurisdictions that claim to be most appropriate for the formation of an offshore company are the following:
Anguilla
Cyprus
Hong Kong SAR
Singapore
Macao SAR
St.Kitts
Bermuda
St. Lucia
British Virgin Islands (BVI)
Malta
Mentenengro
Cayman Islands
Vanuatu
Malaysia(Labuan)
Marshall Islands
Nevis
Forming an offshore company
An important decision to be taken at the time forming an offshore company is about its type and jurisdiction. There are different jurisdictions for governing the formation and operation of offshore companies. However, they may have some attributes in common. These are as follows:
Initially required documents: Under all the jurisdictions, it is a compulsion, to have memorandum and articles of association at the time of incorporation in the written form. These documents should briefly explain the division of powers between the members and the directors of the company and the methods for managing the internal affairs of the company
Incorporation certificate: Upon the incorporation of an offshore company, a certificate about the incorporation of company, should be given to that company. This document will be an evidence to the legal existence of that incorporated company.
Secretary or Representative: It is a requirement for an offshore company to make an appointment of a person who either acts as a local secretary or agent and handed over the duty of handling all the official communications of the company.
Registered Office: Another common obligation for an offshore company is to get an office registered and the registry of companies must be made aware of the fact that, the registered office will be the address for the receipt of every corresponding that is official.
Ownership of company given to shareholders: Initially, when the memorandum and articles of association are formulated, the shares in the company will be taken up by the shareholders. Hence they will be given the ownership of the offshore company. However, they will only be considered as the investors and will play no part in the administration of the company.
Directors of an offshore company: At the time of incorporation and formulation of memorandum and articles of association, and similar documents, the appointment of the directors will be done by the members holding shares of the offshore company and the directors will be given the responsibility of administering the company and running its business. However, they do not hold the status of an investor or owner of the company, rather they are considered as the officers of the company.
Keeping and maintaining the statutory records: It is mandatory under the laws of companies, for an offshore company to maintain statutory record which includes the information of inner framework of the company, these information includes the shareholders and any changes in them, information about secretary and related variations, information about share capital and relevant modifications etc.
Renewal of documents every year: Nearly every jurisdiction makes it a compulsion on an offshore company to get its licenses renewed on a yearly basis. Also, the files either related to outer affairs of the company or the inner matters of the company, should be updated.