Ch. 18: Foreign Corporations and IBCs

• International Business Companies

Synopsis: Discusses the basic elements and operation of International Business Companies.

Definition: International Business Company – A corporation authorized by the statutes of a debtor haven which (with the exception of banking, of course) can only conduct business with persons or entities outside the debtor haven, and not with the locals. In other words, it is a company incorporated in a debtor haven but required to be used elsewhere.

Definition: Nominees, Nominee Shareholders, Nominee Directors, Nominee Officers – These are persons who act on behalf of the true shareholders, directors, or officers of the company, and who typically have executed an undated resignation which allows their replacement at any time.

• Bearer Shares

Synopsis: Discusses the use and severe tax disadvantages of bearer share structures.

Definition: Bearer Shares – Shares which are owned by and give all their rights to the holder (the “bearer”), which ownership is not recorded on the company’s books. Because of their primary uses for money laundering and tax evasion, nearly all jurisdictions have abolished bearer shares in favor of registered shares, the ownership of which are recorded on the company’s books so that physical issuance of the shares is in many ways superfluous.

Additional information on Bearer Shares is available at http://www.quatloos.com/bearer_shares.htm and is a "must read" for anybody contemplating the use of bearer share structures.

• Alternative Share Structures

Synopsis: Describes several forms of alternative share ownership, such as companies limited by guarantee and hybrid companies.

Definition: Companies Limited by Guarantee – A company that has not been capitalized by cash, but rather by the promises of the shareholders to provide a specified amount of cash if required by the company to satisfy liabilities. A similar example is the traditional Lloyds of London syndicates were essentially companies that were capitalized by the unlimited guarantees of their members (the “Names”) to stand behind the syndicates’ underwritings.

• Controlled Foreign Corporations

Synopsis: Gives an overview of U.S. federal tax treatment of foreign companies owned or control by U.S. persons.

Definition: Controlled Foreign Corporation (CFC) – In very general terms, the U.S. Internal Revenue Code term used to describe a foreign corporation that is owned in substantial part or controlled by U.S. persons. For example, an International Business Company formed in the Cayman Islands and owned and controlled in majority party by three U.S. shareholders would likely be treated as a CFC. A CFC has very extensive reporting requirements, and the failure to disclose the existence, operation or revenues of a CFC may be a felony in some instances.