Offshore Knowledge Base

What is an Offshore Company?

Anyone familiar with the concept of a "company" or "corporation" will understand that it refers to a legal entity—essentially a new, distinct "legal person" created by registration. The purpose of forming such an entity is to assign certain assets or responsibilities to this new body, which then exists independently, with its own legal rights and obligations.

A corporation is often referred to as a juridical person or a corporate body. Just like an individual, it can own assets, enter contracts, acquire rights, and incur liabilities. It has its own legal personality. A company can be "born" (through registration) and can "die" (through dissolution or liquidation).

There are many components to any company, each serving a specific function. This leads us to the concept of an "offshore company." How is it different from an "ordinary" company? Structurally, there is no major difference! An offshore company is essentially the same type of entity, but it is registered outside of the home country of its owners.

What does "offshore" mean?

The term "offshore" simply refers to something that is outside one's own country. For example, for an American, "offshore" could mean Canada, Russia, or the British Virgin Islands (BVI). However, over time, "offshore" has come to describe companies formed not only outside of their owner's home country but in jurisdictions that offer specific benefits. These benefits might include tax advantages, fewer reporting and bookkeeping obligations, simple incorporation processes, and enhanced privacy.

In most cases, when people refer to an "offshore company," they are talking about a company that is easy to register, cost-effective to maintain, and enjoys significant privacy protections. However, in terms of structure, an offshore company retains the same components as any "ordinary" company.

Specifics of Offshore Companies in Key Jurisdictions

Here are some of the specific characteristics of offshore companies in three popular jurisdictions:

British Virgin Islands (BVI)

• Taxation: BVI companies enjoy a tax-neutral environment, meaning they are not subject to local corporate taxes on foreign-sourced income.
• Confidentiality: BVI offers high levels of privacy, with no public disclosure of shareholders or directors.
• Ease of Formation: BVI Business Companies are simple and quick to set up, making the jurisdiction one of the most popular for offshore incorporation.

Seychelles

• Tax-Free Regime: Seychelles International Business Companies (IBCs) are exempt from local taxes as long as they conduct business outside of Seychelles.
• Privacy: Like the BVI, Seychelles maintains strict confidentiality, with no public records of company ownership.
• Asset Protection: Seychelles is known for offering strong asset protection laws, which makes it a favored jurisdiction for holding companies and other investment vehicles.

Gibraltar

• Low Corporate Tax: Gibraltar offers a low corporate tax rate of 10% for income earned within the territory.
• EU Access for Financial Services: Despite being a British Overseas Territory, Gibraltar has unique access to certain EU financial markets, making it a strategic location for businesses involved in cross-border trade.
• Legal Stability: Gibraltar follows English common law, providing a robust and familiar legal framework for businesses.

Practical Implications

While offshore companies offer many advantages, they must still comply with the anti-avoidance laws of the country where their beneficial owner resides or does business. In many countries, stricter regulations have been implemented to prevent tax evasion or misuse of offshore entities. For this reason, it is always advisable to seek professional tax advice before forming an offshore company.

Registered Agent and Address

All major offshore jurisdictions, such as the British Virgin Islands (BVI), Seychelles, and Gibraltar, mandate that offshore companies—also known as international business companies (IBCs) or non-resident companies—have a Registered Address within the country. This address often serves as the official point of contact between the company and the government. It can either be a PO Box or a full street address, though most jurisdictions prefer the latter for practical reasons related to corporate administration and compliance.

Registered Agent Requirements

In addition to a Registered Address, offshore jurisdictions also require that companies maintain a Registered Agent within the country. This agent typically operates from the Registered Address and is licensed to provide a range of services, including company formation, legal compliance, and management. The Registered Agent serves as an intermediary between the company and the local government authorities, ensuring that the offshore company complies with all relevant regulations.

The Registered Agent is a professional service provider, usually a firm with the necessary qualifications, infrastructure, and government approval to handle corporate services. The name and address of the Registered Agent are publicly filed with the local Registrar of Companies, making it easy to verify the company's legal address and its agent.

Key Jurisdictional Requirements

British Virgin Islands (BVI)

Under the BVI Business Companies Act 2004, all companies—whether offshore or onshore—must have a Registered Agent based in the BVI. This agent is responsible for maintaining the company’s Registered Address and facilitating communication with the government. There is no distinction between the requirements for onshore and offshore companies in this regard.

Seychelles

In Seychelles, IBCs are required to have a Registered Agent and Registered Address within the country. The agent, usually a licensed service provider, handles the company’s legal and administrative obligations, ensuring compliance with local regulations. Similar to the BVI, the name and address of the Registered Agent must be filed with the Registrar of Companies, and this information is accessible to the public.

Gibraltar

Gibraltar also mandates that all companies, whether offshore or domestic, maintain a Registered Agent and Registered Address. The Registered Agent must be a licensed entity capable of managing company formation and compliance. As with the other jurisdictions, the Registered Agent's details are submitted to the Companies Registry and are publicly accessible.

Purpose of Registered Agent and Address

The primary purpose of having a Registered Agent and Address is to provide a local point of contact for the government, ensuring that the offshore company remains in compliance with the laws of the jurisdiction. Additionally, it allows third parties to access basic company information, such as its legal address and the identity of its Registered Agent, which enhances transparency and accountability.

In summary, regardless of the offshore jurisdiction—whether it's the BVI, Seychelles, or Gibraltar—having a Registered Agent and Address is a legal requirement designed to maintain compliance with local laws, facilitate communication, and ensure transparency for companies operating in these international business hubs.

Memorandum and Articles of Association in Offshore Companies  

To formally incorporate a company, a set of legal documents, the Memorandum of Association and the Articles of Association, must be filed with the Registrar of Companies. These documents serve as the foundation of the company, outlining its legal framework and operational structure. The content and details of these documents can vary depending on the legal requirements of the offshore jurisdiction, the practices of the company formation agent, and the specific needs of the client.

The Memorandum of Association typically defines the company's name, registered address, and objectives. It may also specify the company’s authorized share capital and the initial shareholders. The Articles of Association, on the other hand, govern the internal workings of the company, such as the roles and responsibilities of directors, shareholder rights, voting procedures, and guidelines for meetings.

The Memorandum and Articles are often signed by a Subscriber or Incorporator, typically the Registered Agent acting on behalf of the client. The Registered Agent is licensed to handle the incorporation process, sparing the client from having to travel to the offshore jurisdiction to sign the incorporation documents. This method is common across major offshore jurisdictions.

Key Components of Offshore Company Incorporation

• Form and Type of Company: The documents outline the legal structure, such as whether the company is a limited liability company or another form of entity.
• Registered Address and Agent: Offshore companies are required to have a local address and a Registered Agent within the jurisdiction.
• Share Capital and Share Types: The Memorandum details the company's authorized share capital and the type of shares issued, along with the rights attached to each class of shares.
• Directors and Officers: The Articles provide rules for appointing and dismissing directors and officers, as well as their roles and responsibilities.
• Meetings and Resolutions: Guidelines are set for how shareholder meetings are conducted, the quorum required, and the process for adopting resolutions.

Offshore Jurisdiction-Specific Practices

While the process is similar across most offshore jurisdictions, the specific requirements and practices can vary slightly between different regions.

British Virgin Islands (BVI)

• In the BVI, the Memorandum and Articles of Association must be filed through a licensed Registered Agent. Even if the actual owners sign the documents, only filings through a Registered Agent will be accepted by the Registrar. The initial Subscriber typically subscribes to the minimum number of shares and can later transfer them to the actual shareholders.

Seychelles

• In Seychelles, the Registered Agent plays a similar role in incorporating the company. Seychelles International Business Companies (IBCs) benefit from simplified requirements regarding the number of shareholders and directors, allowing greater flexibility. The Memorandum and Articles of Association are not required to disclose shareholder details publicly, providing enhanced privacy.

Gibraltar

• Gibraltar’s incorporation process also relies on the services of a Registered Agent, though the jurisdiction offers the option of drafting more detailed Memorandum and Articles to suit specific business needs. Gibraltar requires a local registered office, but companies enjoy a well-established legal framework based on English common law.

Role of the Registered Agent

Across all these jurisdictions, the Registered Agent serves as the primary contact with the local authorities, handling the filing of the Memorandum and Articles of Association. This agent ensures compliance with local laws and facilitates the incorporation process without the need for the beneficial owner to be physically present in the jurisdiction. Once the company is incorporated, the Registered Agent also assists with ongoing compliance, such as renewing the company’s registration and maintaining its legal records.

Shareholder Structure

Initially, the Subscriber (often the Registered Agent or an affiliate) subscribes to the minimum required shares at the time of incorporation. After registration, the shares can be transferred to the ultimate beneficial owners or held by the Subscriber as a nominee shareholder, depending on the client’s preferences. This flexibility is a common feature in many offshore jurisdictions and offers privacy for the actual owners.

What are First Resolutions for an Offshore Company?  

The First Resolutions of an offshore company are key internal documents that outline important decisions made after the company’s incorporation. These resolutions are usually prepared by the Subscriber or the Registered Agent and help define the initial structure and governance of the company. These resolutions cover various essential aspects, such as the company’s name, registered address, registration number, and key appointments like directors, shareholders, and sometimes other officers.

Key Components of First Resolutions

1. Appointment of Directors and Shareholders: The First Resolutions confirm who has been appointed as directors and which individuals or entities have been issued shares. The number of shares and the ownership structure of the company are also detailed here.
2. Registered Agent: The Registered Agent is an essential part of an offshore company’s setup, and the First Resolutions formally establish who holds this role. The Registered Agent is responsible for ensuring the company remains compliant with the laws of the jurisdiction.
3. Additional Appointments: Depending on the company’s structure and the jurisdiction, the First Resolutions may also include the appointment of a secretary, accountant, auditor, or legal advisors. In some cases, they can also include authorizations to open bank accounts and appoint signatories.

Filing and Privacy Concerns

The filing of First Resolutions varies depending on the jurisdiction. In many offshore locations, including British Virgin Islands (BVI), Seychelles, and Gibraltar, the First Resolutions are typically not filed with a public registrar. This ensures a degree of confidentiality. However, there are exceptions:

• BVI: While the First Resolutions themselves are not publicly filed, the Register of Directors must be submitted to the Registrar within 21 days of the appointment of the first director. This information is publicly accessible through the BVI's online registry. The Register of Shareholders can also be filed if the beneficial owners choose to do so, but it is not mandatory.
• Seychelles: Like the BVI, Seychelles International Business Companies (IBCs) are not required to publicly file First Resolutions. However, the company’s Register of Directors must be maintained, and certain disclosures may be required depending on the company’s activities.
• Gibraltar: In Gibraltar, while the First Resolutions are kept private, there are requirements to maintain up-to-date records of shareholders and directors with the Registrar of Companies. Gibraltar offers enhanced privacy protections, but specific company information may be accessible depending on the nature of the business.

Ongoing Resolutions and Structural Changes

As the company begins its operations, further resolutions may be necessary to document structural changes, such as appointing new directors, issuing additional shares, or changing the registered office. These changes must generally be approved by the directors or shareholders, following the company’s Memorandum and Articles of Association.

In most offshore jurisdictions, all resolutions—whether they involve structural changes or routine corporate decisions—must be kept on file with the Registered Agent. If the Registered Agent is not involved in the resolution process, the company is responsible for submitting these documents to the Agent for proper filing.

Compliance and Record-Keeping

Regardless of the jurisdiction, it is crucial for an offshore company to keep accurate and up-to-date records of all resolutions, whether they are part of the initial setup or pertain to future structural changes. These documents must be accessible in case of an audit or legal inquiry, and they form a core part of the company’s compliance obligations.

Directors and Officers in Offshore Companies  

In an offshore company, the director is generally responsible for the day-to-day management and operations of the business. Directors are initially appointed either by the first subscriber (often the founding shareholder) or by the registered agent during the incorporation process. After this, they are typically elected by the shareholders or, in some cases, by the existing board of directors, depending on what the company's articles of association permit.

The tenure of a director in an offshore company can be either for an open term—where the director serves "until a successor is elected and qualifies"—or for a fixed term, as specified in the company’s articles. Offshore jurisdictions usually require a company to have at least one director, though companies may appoint several if desired.

Offshore Jurisdictions and Corporate Directors

In many offshore jurisdictions, such as the British Virgin Islands (BVI), Seychelles, and Gibraltar, it is permissible to appoint either an individual or a corporate entity as a director. This flexibility allows businesses to structure their governance in ways that suit their specific needs.

British Virgin Islands (BVI)

In the BVI, companies must have at least one director, who can be either an individual or a corporate entity. A corporate director might be a firm of professional business managers who handle the company's regular operations. This can provide continuity and professional oversight, but may also add complexity to the company's structure. The BVI Business Companies Act 2004 also includes a provision for appointing a "reserve director" for companies with a sole individual director. This reserve director can step in if the sole director passes away, ensuring continuity of management.

Seychelles

Seychelles International Business Companies (IBCs) similarly require at least one director, who may also be either an individual or a corporate entity. The use of corporate directors is common, especially when maintaining the privacy of the beneficial owners is a priority. Corporate directors also offer a layer of protection against issues such as the resignation or unavailability of an individual director, as the company itself remains stable under corporate management.

Gibraltar

In Gibraltar, a company must have at least one director, who may be a private individual or a corporate body. As a jurisdiction that adheres to English common law, Gibraltar provides a stable legal framework for companies. Corporate directors are often appointed in complex international structures, providing continuity and professional management while reducing the need for constant changes in directorship.

Individual vs. Corporate Directors

The choice between an individual or corporate director can affect the way a company is perceived and managed. Individual directors offer a straightforward governance structure and may be more familiar to people from jurisdictions where only individuals can act as directors. However, individual directors may be subject to personal circumstances such as illness, vacations, or resignation, which could temporarily hinder the company's ability to operate.

Corporate directors, on the other hand, provide more stability since a firm rather than a single individual is responsible for the company's management. This continuity ensures that there is always someone available to act on behalf of the company. Corporate directors are also more familiar in offshore jurisdictions, making them a common choice for businesses seeking professional management and additional confidentiality.

Powers of Directors

Directors often have the authority to delegate specific powers to managers or attorneys of the company. These appointees may be given powers such as signing authority over bank accounts, the ability to negotiate contracts, or other responsibilities necessary for running the company’s affairs. In many cases, shareholders or beneficial owners may be appointed as managers or attorneys to ensure practical control over the company's activities.

While offshore jurisdictions provide flexibility in appointing directors and managing a company, it is essential to structure these roles carefully to ensure smooth operations and compliance with the laws of both the offshore jurisdiction and the home country of the beneficial owners.

Shareholding Structure of Offshore Companies  

Offshore companies, like their onshore counterparts, rely on shares to represent ownership. These shares act as units of accounting, indicating the participation of each owner in the company. When a person takes or buys a share in a company, they invest personal assets—whether in cash, intellectual property, or other resources—into the company. This entitles the shareholder to a share of the company’s profits, proportional to their ownership stake. Additionally, shareholders typically have voting rights, allowing them to influence the company’s decisions, although this may not apply to non-voting shares.

There are several key types of capital that relate to shares in an offshore company, each of which plays a different role in defining the company’s financial structure.

1. Authorized Share Capital

Authorized share capital refers to the maximum amount of capital a company can raise by issuing shares to its shareholders, as outlined in its Memorandum of Association. This capital is essential in setting up the company and financing its initial operations until it can sustain itself through revenue.

Most offshore jurisdictions, such as the British Virgin Islands (BVI), Seychelles, and Gibraltar, have flexible rules regarding authorized share capital. Offshore companies in these jurisdictions often have minimal requirements for authorized capital, which affects the government fees paid at incorporation.

• In the BVI, companies are not required to specify the value of their authorized capital. Instead, they can simply declare the number of shares to be issued, and these shares can later be issued at any price deemed appropriate by the owners. This flexibility allows companies to adjust their capital needs as their business evolves.
• In Seychelles, similar flexibility exists, where there is no need to declare the monetary value of authorized capital unless desired, allowing businesses to grow without strict capitalization rules.
• In Gibraltar, companies also enjoy flexibility, but they must specify the authorized capital and adhere to minimal corporate tax obligations, especially for income derived locally.

The amount of authorized share capital often influences the government fees paid upon incorporation and annually thereafter. For example, in the BVI, companies authorized to issue up to 50,000 shares pay a registration fee of $450, while companies issuing more than 50,000 shares face a higher fee of $1,200.

2. Subscribed Capital

Subscribed capital is the portion of the authorized share capital that shareholders have committed to purchasing. A company may not issue all its authorized shares immediately. For instance, a company with 50,000 authorized shares may only sell 1,000 shares to its initial shareholders, meaning that the subscribed capital consists of those 1,000 shares.

If a shareholder like John agrees to purchase 1,000 shares, and no other shareholders exist, John would own 100% of the company, even if only a portion of the authorized shares has been issued. When additional shareholders join, as in the case of Mary purchasing 1,000 shares, the subscribed capital would then be 2,000 shares, and John and Mary would each own 50% of the company.

The subscribed capital reflects the actual investment made by shareholders, even if it represents only a fraction of the total authorized shares. The remaining shares remain unissued and can be sold to future investors.

3. Paid-Up Capital

Paid-up capital represents the actual funds received by the company in exchange for its shares. When shareholders pay for their shares, they fulfill their commitment, converting subscribed capital into paid-up capital.

Only once the shares are fully paid up do shareholders acquire full rights, including the ability to receive dividends and vote at shareholder meetings. Offshore jurisdictions such as the BVI, Seychelles, and Gibraltar provide flexibility regarding the payment schedule for subscribed shares, meaning there is no requirement for shares to be fully paid at the time of incorporation.

This flexibility differs significantly from many high-tax countries, where companies are often required to fully pay their authorized capital upon or shortly after incorporation.

Capital Flexibility in Offshore Jurisdictions

Offshore jurisdictions provide significant flexibility in how capital is structured, which contrasts sharply with the stricter regulations found in many high-tax countries. For instance, in many European nations, there are stringent requirements for minimum authorized, subscribed, and paid-up capital, often reaching tens of thousands of euros. These funds typically need to be fully paid up at or shortly after incorporation, reflecting the traditional belief that a company cannot function without substantial upfront capital.

In contrast, most offshore jurisdictions have either no or minimal requirements for authorized capital, and there are few, if any, obligations for subscribed capital to be paid immediately. For example, in the BVI, companies are free to issue shares with nominal or significant value, depending on their needs, and there is no requirement to pay capital within a set time frame. Similarly, in Seychelles, there is great latitude in structuring share capital, allowing companies to maintain low overheads while still having the flexibility to raise significant capital when needed.

This flexibility extends to government fees, which are often tied to the number of shares or the total authorized capital. In the BVI, for example, companies can issue up to 50,000 shares while paying the minimum registration fee. This makes it cost-effective to register offshore companies in such jurisdictions, and service providers will typically suggest the optimum number of shares to keep incorporation costs low.

Confidentiality and Shareholder Registration

Offshore jurisdictions are renowned for the privacy they offer to shareholders. Unlike many onshore jurisdictions, where shareholder information must be registered publicly, BVI, Seychelles, and Gibraltar allow companies to keep shareholder details private. Shareholders' details are usually recorded only in internal company records held by the registered agent, ensuring confidentiality.

In the BVI, for instance, there is no requirement to publicly disclose shareholder information, although companies have the option to voluntarily file this information with the Registrar if desired. Shareholders seeking additional layers of privacy often use nominee shareholders, where a third party holds the shares on behalf of the actual owner, further shielding their identity.

Government Fees and Optimum Share Capital

In most offshore jurisdictions, the government fees associated with incorporation and annual renewal depend on the company's authorized capital or the number of shares it is permitted to issue. For example:

• In the BVI, companies authorized to issue up to 50,000 shares pay a registration fee of $450, while those issuing more than 50,000 shares pay $1,200.
• In Seychelles, similar flexibility exists, with fees based on the size of the authorized capital.

Offshore service providers often recommend setting authorized capital at an optimum level, such as 50,000 shares, to minimize government fees while maintaining flexibility for future growth.

In summary, the shareholding structure of offshore companies offers a level of flexibility and privacy that is often unavailable in high-tax jurisdictions. Whether you are incorporating in the BVI, Seychelles, or Gibraltar, offshore companies provide adaptable frameworks for managing authorized, subscribed, and paid-up capital, while maintaining the confidentiality of their shareholders.