Offshore corporations & trusts: do you really need them?
To many people, corporations are essential tools
in making money, discharging liabilities or
owning assets globally; often in deep secracy.
A corporation or trust is what lawyers call a
"legal entity". Whereas a company does not eat,
sleep or go to the movies, it may own just about
anything you care to mention: bank accounts,
stocks, bonds, investments, cars, boats, and even
areoplanes. So may a trust (foundation).
The distinction between a "corporation" and a
mere "company" is that the former is, by its very
defination, a seperate legal entity as opposed to
an unincorporated, personally-owned company. A
corporation may go bankrupt and leave creditors,
including tax men, holding the short end of the
stick. An unincorporated company will be
inextricably linked to its owner(s). If an
unincorporated company defaults on a dent or a
payment, creditors may immediately turn to the
owner and demand payment from him, which is a
pretty good reason why you should never operate
any business accept from behind the protection of
a corporation. That way, you areonly liable for a
loss up to whatever capital you have invested in
the business, but no claim can be made against
you personally in the event that the corporation
folds or closes with a negative net worth.
Unless, of course, fraufulent conduct by the
owner(s) or manager(s) can be proved. Only rarely
are owners or managers held personally liable for
losses stemming from fraud or gross misconduct,
which you should take to read as - only in cases
where criminal misconduct (or outright fraud) can
be proved. Proving such claims may take years.
This is the major reason why dejected creditors
usually take their licks and abstain from
pursuing the matter further.
Shares in a corporation have to be owned by
someone - or something. Usually, shares are held
either by ordinary shareholders, by one or more
other companies, institutions or trusts. But a
corporation cannot own itself. Someone has to own
the shares, which also means that someone may be
taxed on the wealth represented by the value of
the shares, or the dividends or even on the
capital gains realizes when the shares are
ultimately sold (or the corporation is
successfully liquidated).
Enter trusts - or foundations, as they are
sometimes called. As opposed to a company or
corporation, no one can own a trust. By
definition, a trust is not only a seperate, legal
entity, but also "owns itself". No physical or
legal person may "own" even the tiniest little
share of the trust. And that, exactly, is why
trusts are so phenomenal in their potential uses.
Let us say, for instance, that you live in a
high-tax country with very strict tax laws. Every
year, you have to file an income tax return. On
this paper you will usually be obliged to make a
full disclosure of all bank accounts, shares, and
other assets that you own - inder threat of
severe penalties, including jail, for
non-disclosure.
The solution to this is not to keep your assets
in other countries, most high-tax countries tax
their citizens on their global income and ,
accordingly, require that all assets (even
non-taxable) be disclosed, regardless of where
they happen to be. Even if you own, say,
aloss-making company in another country,or a
non-interest bearing bank account (well, they do
exist) somewhere you will be legally obliged to
disclose this fact on your income tax return.
Some countries, including the U.S., even demand
that citizens disclose the benificial ownership
of shares, etc., to guard against such assets
being legally kept a secret by having them
officially registered as belonging to someone
else - like an attorney, for instance. The
management of a trust can be tow-tiered. On the
top of the pile is the Protector, it is up to
that person to make sure that the trust's charter
is adhered to and that the rules laid down for
the dispensing of the trust's assets are
followed. The role of the protector is purely
that of a supervisor with veto power over the
trustees and power to fire them in his sole
discretion. The day to day affairs of the trust
are handled, not by corporate officers but by
co-called trustees. The Trustee will make all the
decisions concerning the investments and
disbursements of funds made by the trust. If the
trust wishes to open a bank account, or buy a
yacht (in keeping with the trust's charter, of
course) then it will be the board of trustees
which has to arrive at this decision and sign the
papers.
But, as you will already have guessed, the
trustees may decide to sign a power of attorney
to someone else who can then, in effect, do
whatever he or shee wishes on behalf of the
trust, at his sole discretion - without having to
ask permission.
Now, if you own the assets that you either do not
wish to disclose or wish to guard against future
seizure, confiscation or nationalisation by your
home government, you may give your tactics a
"veneer of legality" bt conducting your financial
affairs through the use of trust and one or more
corporations.
