“The A-B-Cs of IBCs” Understanding International Business Corporations
By Jeff Corbett
Lying sixty miles off the southeast coast of Florida, the Bahamas is a collection of 700 islands and cays, stretching more than 500 miles in length. Numerous factors have contributed to this small country’s important position; primary among those considerations is its stability. An independent nation within the British Commonwealth of Nations, the Bahamas has enjoyed an uninterrupted 260-year reign of political democracy, peace and prosperity. It is also home to literally thousands of International Business Corporations.
As an entrepreneur, one of the most important decisions that you will ever make is how to structure your business interests. With the dramatic expansion of the internet more companies than ever hold substantial assets in multiple nations. This, of course, adds to the complexity of structuring requirements. Over the years, we have also noted that international businesses can frequently get bloated – as they grow and expand into new markets – with redundancies or inefficient networks resulting in the loss of both time and money. To that end, we have become a strong advocate in support of locating and utilizing the most business friendly jurisdictions for bringing critical functions in-house to achieve additional control as well as cost reductions.
In terms of structuring your business there are only a handful of potential vehicles to use. Please note that we intentionally avoid using the term” offshore” even though we are almost exclusively discussing international entities. Offshore often invites a visceral response from the uneducated but more importantly it seems outdated since it is associated with tax havens or shelters. In today’s environment of worldwide tax there is no relief to be obtained by moving small-cap companies overseas and thus we choose to avoid the term as much as possible. In this article we wish to examine a very basic vehicle – International Business Corporations.
International Business Corporations
A time-tested corporate vehicle, International Business Corporations, also known as IBC’s, are corporations established under the legislation of an overseas jurisdiction. Often considered a twin sister to the United States Delaware Corporation there are many similarities between the two but also major differences. Just as is the case in the Delaware, an IBC is a basic corporation which requires only a minimal presence be maintained in the host jurisdiction. To meet this obligation it is normally sufficient to have a representative office established and maintained by a local law firm. Operations of the company need not be moved to the host locale. In fact, the IBC is a legal entity that is frequently prohibited from conducting business in its country of incorporation. It is also often free from all local taxes and merely responsible for paying small fixed annual fees. Again, please keep in mind that as an owner your personal tax obligations and reporting requirements will vary depending upon the owner’s country of origin.
The Three Key Benefits to an IBC:
- Inexpensive to Establish and Maintain
- Enhance Personal or Corporate Privacy
- Provide a Basic Corporate Veil for Asset Protection.
Of the three major benefits listed above, we think enhancement of privacy is what sets an IBC apart. Regulatory requirements for IBC are minimal. This often means that either the public records of the company are protected by local law or in the case of bearer shares only the incorporation documents and the registered office and agent are known. This privacy element is not protected when a criminal investigation is underway or a probe is made by a foreign government for tax reasons. It is, however, very effective to screen the probing eyes of competitors, attorneys initiating frivolous civil lawsuits or in extreme cases governments known for political persecution. The bottom-line is that the owners of the IBC are not widely known, and ultimately privacy is maintained.
Bearer shares
At this point it is probably best to go into some detail about bearer shares. A bearer share instrument is a security that indicates ownership of an entity by means of possession. Therefore, it is like cash. It differs from registered shares in that no public record is maintained of direct ownership but as stated earlier the registered office and agent are known. It is noteworthy to mention that in the United States bearer shares were once a common form for municipal bonds. Also called coupon bonds these tax free instruments were traded in this form until the early 1980s. The ownership of these bonds was not registered; therefore, they were frequently kept in safety deposit boxes since possession was like cash. In 1983 the U.S. Government sought more knowledge of who owned their debt – even at the local level – and this option was eliminated. Outside of the United States, bearer shares were once a common form for IBCs which is no longer the case. A few countries, however, still allow for bearer shares corporate entities.
Common Commercial uses of an IBC:
- Trading.
- Portfolio Management (Third party management is prohibited)
- Equipment Leasing
- Open New Markets
Conclusion:
An IBC may not act as a Trust, Bank or Insurance Company. It is often restricted from doing business with the local citizens which is one of the reasons that it may also be referred to as an exempt company. Many countries will also restrict it from owning local real estate. Therefore, there are numerous limitations to the potential benefits of owning an IBC but it does have its place. For example: it is estimated that in the Cayman Islands there are approximately 30,000 companies registered, Bermuda has over 9,000 registered international companies, the British Virgin Islands has 200,000 and the Bahamas lists another 65,000. So clearly they are popular but these figures pale in comparison to U.S. domestic corporations established in Delaware, Wyoming or Nevada. We conclude that privacy benefits drive its popularity along with basic business uses.
Posted in: Miscellaneous, Uncategorized on May 30, 2012
Related Posts
New Business Opportunity for Sale!
Cross-Border Business Planning
Cross-Border Business Planning
Subscribe
Free E-Book
“The Complete Guide to Swiss Trust Company Ownership”
by Jeffrey H. Corbett
