Document Sample

                         Written and presented by: Annie Ng, General Manager
                               International Registries (Far East) Limited

                       Extravaganza Shanghai - The Wealth Management Forum
                                         Shanghai, China
                                           June 3, 2005

A responsible offshore corporate registry.

I. Responds to Clients

A. Decentralization

One of the common reasons for incorporating a company offshore is to do business internationally without
many restrictions, such as foreign exchange controls. As such, it is imperative for an offshore corporate
registry to be able to provide instant services, locally, so that clients do not have to deal with the time
difference between the actual place of business and the offshore jurisdiction. Time is money. Furthermore,
the word “local” means no courier or airmail is required. Clients should be able to obtain documents from
an offshore corporate registry within 24 hours and at the most reasonable fee. Clients should no longer need
to pay unreasonable courier fees or other miscellaneous fees.

In other words, decentralization is one of the important factors for an offshore jurisdiction to be attractive
to both the professional and the ultimate beneficiaries. Waiting two weeks for original documents is an
obsolete practice by an offshore registry in today’s world. Nowadays, clients can choose to set-up a
company in an offshore corporate registry that has offices in major countries such as the USA, the UK,
PRC (Shanghai and Hong Kong), Japan, etc… in order to enjoy instant service.

B. Advantages of an offshore corporate program

The following advantages must be considered when considering which jurisdiction to incorporate a

1. Which jurisdictions offer the most privacy? This is one of the most commonly asked questions, and, if
you ask individuals in ten different jurisdictions, you will get ten different opinions. A registry should only
require the filing of Articles of Incorporation (AI). In addition the registry may issue a Certificate of
Incorporation. The Certificate of Incorporation is the registry's official document listing the company's
legal name and assigning the corporation number. The first page of the AI states the name of the company
and the name and the location of the Registered Agent. This information is required in every jurisdiction.
Thereafter, the documents will state that the company can do anything legal under the laws of the
jurisdiction, and will explain capitalization, shares, duties of the directors and officers, voting, etc. These
documents neither list nor reveal the identity of the beneficial owner of the company. Ownership of the
company is usually passed by way of stock certificates (either registered or bearer shares). The initial
director is usually elected by the subscribers through a resolution. In other words, if the certificate of
incorporation and memorandum of association from jurisdictions are obtained from the registry, the
documents will provide no information relating to the ownership of the company. For this reason
individuals should not spend thousands of dollars incorporating in jurisdictions simply because someone
may have said or it may have been read that a particular jurisdiction provides more privacy than another
jurisdiction. Anyone with experience looking into an individual’s affairs either knows or will learn quickly
that searching for corporate documents at a registry is a waste of time and energy. Most individuals
incorporate a company to put assets into a legal entity and out of a personal name. An offshore company
allows an individual to get assets out of a personal name and into a legal entity controlled by that
individual. By forming an offshore company and utilizing the benefits it can provide, an individual can
more than offset the incorporation costs. Looking for the best privacy does not require spending a fortune
during the incorporation process. Many jurisdictions require extra incorporation fees for corporations with
bearer shares and the process of maintaining the bearer shares with these jurisdictions is very cumbersome.
Some of the restrictions basically defeat the purpose of bearer shares.

2. The second factor to consider is tax issues. International Business Corporations (IBCs) of many offshore
jurisdictions are exempt from any corporate profit tax, income tax, withholding tax and asset tax, etc. as
long as the profits are generated outside the jurisdiction. However, some of the jurisdictions, due to the
influence of the Organization for Economic Cooperation and Development (OECD), impose a minimal
corporate tax such as 5%. For this reason, one should consider those jurisdictions that have statutory
exemptions from taxation. In other words, the corporate law of the offshore jurisdiction should state in the
law itself that offshore companies are exempt from all taxation in that jurisdiction.

3. Flexibility is another major factor to think about when choosing the right jurisdiction to form your
investment vehicle. Allowing payment for shares in any currency is a big plus.

4. Again, in today’s global economy, being able to have company documentation in both English and the
mother tongue language will certainly make things easy for clients from some countries where English is
not a commonly used language. Dual-language filings, for example, the filing of corporate documents in
both English and Chinese, are incredibly beneficial for doing business in the PRC.

5. Efficiency. Being able to quickly answer any corporate inquiry is certainly another big plus for an
offshore corporate registry. No more waiting for a week or even more to receive a reply from the corporate
registry. Clients should be able to receive a reply from a local office within one business day.

6. Stability of the jurisdiction is another big factor to consider. Being able to conduct business anywhere
without being penalized due to the political instability of the jurisdiction must be taken into account.

7. The last but not the least important factor to consider is the filing requirements. Does an offshore
jurisdiction have cumbersome and numerous filing requirements? If so, one could incur a lot of fees in the
future. These fees can be substantial.

II. Responds to the Banking Community

In fact, incorporating an offshore company is not the difficult part. But trying to obtain a bank account for
an offshore company can be a headache. So choosing an offshore jurisdiction that is recognized by many
major banks will be beneficial in this respect.

A. Know your client (KYC) policy

1. Responsible corporate registries should only incorporate offshore companies through qualified
professional intermediaries such as lawyers, accountants, or others experienced in the company formation
industry. After fully understanding a client’s background and reasons for incorporating an offshore
company, these professionals will be able to design the best business plan to maximize the client’s
profitability in a legal manner.

2. Business limitation on IBCs. An offshore jurisdiction should place only minimal restrictions (such as
prohibiting banking or insurance companies) on the types of business that its IBCs can conduct under the
law. Overly burdensome restrictions simply create more work and potential expenses for the IBCs,
including extra legal and other compliance costs.

B. Reputation and Familiarity
1. Choosing an offshore jurisdiction that has the most modern corporate legislation, which is commonly
accepted by major commercial centers, is very important. Many offshore jurisdictions have not updated
their company law in a decade or more. If the corporate legislation is up-to-date, then it will be more
familiar to the banking and legal communities around the world.

2. Furthermore, choosing a jurisdiction with a reputable maritime registry is definitely a plus as well. These
companies will be used to obtain multi-million dollar financing. So, if banks have no problem lending
money to finance ships using the offshore company, they should certainly have no problem opening bank

C. Documentation

With more and more bank requirements, one must choose a jurisdiction that is flexible and willing to
accommodate requests from clients in order to satisfy banking requirements to expedite the process of
opening an account.

III. Responds to Wall Street

Another important test as to the viability and usefulness of an offshore company registry is whether or not
there are companies from that jurisdiction that trade publicly on major stock exchanges. There is probably
no stricter test of the laws of a jurisdiction than the scrutiny that a company must endure when trying to “go

A. Importance of Going Public

a. Raise revenue/possible windfall

Perhaps the single biggest reason why companies wish to go public is the opportunity to raise substantial
revenue through the public offering of shares in the company. There is really no other method in which a
company can suddenly raise millions of dollars so quickly. Such cash windfalls can be used for a variety of
purposes, such as expanding operations, purchasing better technology and equipment or even simply
allowing the founders of the company to make more revenue.

b. Public perception

Becoming a publicly traded company immediately creates more interest in the company and raises its
profile throughout the media and the business world. It allows a company to be respected as a serious
player in its industry. It also allows companies to have much broader name recognition. Name recognition
and branding is one of the most important goals of successful companies today and publicly traded
companies have a substantial advantage over privately held companies in this regard.

c. Shareholder involvement

Of course, one of the major disadvantages in going public is the loss of total control of the company.
However, there are ways in which the founders of the company can maintain some control. Attorneys,
bankers and other professionals should be able to assist beneficial owners with these issues and a good
corporate registry should have a network of contacts that can assist companies in the complicated process
of becoming a publicly traded company.

B. Need Modern Corporate Statute

In order for an offshore or any foreign company to become listed on a major stock exchange, the stock
exchange itself must respect the laws of that foreign jurisdiction. An offshore corporate jurisdiction must
have a modern, up-to-date corporate law that reflects the advances in corporate jurisprudence over the
years. The offshore jurisdiction’s corporate law should be based on the law of a highly respected onshore
corporate jurisdiction and should specifically incorporate the case law of that onshore jurisdiction so that
the companies and their shareholders and management are afforded the fullest degree of legal protection.

C. Good Reputation

Additionally, the offshore corporate registry must possess a good reputation throughout the world’s
financial and legal community. The jurisdiction should not be on a money laundering blacklist, which
would make it difficult for companies formed in that jurisdiction to operate freely throughout the world.

D. Modern Lines of Business

Finally, the offshore company registry should offer a choice of corporate entities so that a client can choose
the entity which is most suitable for his/her purposes.

a. IBC

Naturally, the jurisdiction must offer corporations, sometimes referred to as IBCs, which still remain the
most common entity structure around the world. Most jurisdictions offer some form of an IBC. However,
the jurisdiction should not require the disclosure of the names of the shareholders or management of the

b. Limited Partnership

Limited partnerships (LPs) are another attractive option. LPs allow individuals or other companies to be
limited partners, meaning that they will share in the profits of the LP, but are not involved in the
management of the LP itself. The LP is actually managed by the general partner. The LP law in a
jurisdiction should allow the general partner to be a corporation and should not require the disclosure of the
names of the limited partners. This allows for high levels of confidentiality and for the possibility of using
the LP to go public as well, assuming the LP law of the jurisdiction is modern enough to do so.

Although no single choice will influence the selection of an offshore jurisdiction…factors such as
confidentiality, legislation, expense, political stability, reputation and service all have the potential to
impact an IBC’s capacity to conduct business, open a bank account, hold real estate, and go public around
the world. Also, business limitations facing offshore jurisdictions such as outside pressures from
international organizations and heightened scrutiny from the international banking community will dictate
the ultimate success or failure of an offshore jurisdiction.

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