IBCs – Why Have a Shareholders Agreement?

A Shareholders Agreement is a contract between some or all of the shareholders of a Company in which they agree to regulate the exercise of some of their rights as shareholders.


A Shareholders’ Agreement is a supplement to a/the Company’s Constitution/Articles of Association and will generally regulate shareholders’ rights and regulate the management/operations policy of the Company.


Potential Problems In The Absence Of A Shareholders Agreement:


1) The rights of minority shareholders are typically limited under a/the Company’s Constitution/Articles of Association. Minority shareholders must rely on the Courts for assistance if they have a complaint about the way in which a company is conducted. The Courts only provide help in limited circumstances (and usually at a sizeable cost).


2) What happens if a shareholder wishes to sell his or her shares upon -

•          Retirement?

•          Disability?

•          Death?

•         Or for any other reason?

Company Constitutions/Articles of Association are usually silent on detail with respect to these issues.


Unless these events are adequately covered in a Shareholders’ Agreement, the only potential purchasers are the other shareholders; If they don’t want the shares, (or aren’t prepared to pay full value for them) then the shares remain unsold or are sold at far less than their true value.


Death of a shareholder can result in the shares being worthless to the deceased’s estate because there is no purchaser. On the other hand, the beneficiaries who inherit the shares (eg the deceased’s spouse) may wish to become actively involved in the company against the wishes of the other shareholders.


Benefits of a Shareholders Agreement


Shareholders agreements can bind the shareholders to protect share value and control who becomes a future shareholder, for example:


•          Buy sell agreements: An agreement can provide that upon a shareholder wishing to sell out, existing shareholders have an option or first right to buy shares at a re-determined price or formula. If the existing shareholders don’t wish to purchase the shares, the agreement can set minimum requirements for an incoming buyer, for example that the party is acceptable to the remaining shareholders.

•          Compulsory buy agreements: An agreement can provide that upon a shareholder retiring, being disabled and/or dying the remaining shareholders must compulsorily buy the shares. Funding such buy outs can be planned and a savings plan or borrowings put into place, whilst in the event of death and disability, the buy outs can usually be funded through the provision of appropriate insurances.

•          Compulsory sell agreements: An agreement can provide that upon a shareholder breaching the shareholders agreement, becoming insolvent or on the happening of other specified events, the non-defaulting shareholder/s can elect to compulsorily acquire shares from the defaulting shareholder and eject that shareholder. The agreement can predetermine the price or formula for determination of the sale price. The price payable in the event of breach of the agreement may be less than that payable in other circumstances and generally discounted from the market value.


Matters Not Regulated By The Company Constitution/Articles of Association


A Shareholder’s Agreement can include provisions regulating -

•          Shareholder exit strategies

•          Shareholder warranties

•          Confidentiality agreements

•          Restraint of trade for directors and/or shareholders

•          Agreement specifying or limiting business activities of the company

•          A shareholder’s right to appoint directors and the number of directors

•          Director’s meeting procedures

•          Minimum budgeting, business plan, accounting and management reporting requirements of directors and management

•          Agreement concerning financing policy

•          Dividend distribution policy

•          Personal rights/obligations of shareholders

•          Documentation of shareholders’/directors’ loans and the right to payment of interest

•          Policies, management and procedures

•          Protection of minority shareholder interests.


A Shareholders Areement should cover all aspects of the relationship and the mechanics by which the company is to be operated. The agreement should also protect the respective interests of the parties to the agreement and outline dispute resolution.


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Forex Traders – How To Set Up a Copy Trade Business Offshore Tax Free

With the rise in the volume of day traders entering the Forex market over the course of the past 10-20 years, it comes as no surprise to see a recent spike in the volume of Entrepreneurial Traders realizing that there is money to be made by allowing others to copy their trades and charging for the provision of such information.


Such an arrangement enables an experienced Forex Trader to allow novice traders/investors to “piggy” back on the frame of the experienced Trader (ie copy the trades of the experienced Trader) without the Trader having to endure the red tape, hassle, cost or legal risk that would likely otherwise come into play were the Trader to trade the Novice’s money directly.


If you are an experienced/successful Forex Trader, chances are you will have had (or will soon have!) friends or family or acquaintances come at you asking you to invest (ie Trade) their money.


Generally speaking, if you take people’s money and invest it (or if you offer financial/investment advice) such endeavours would require one to apply either for a Mutual Fund License or a Broker’s License or a Financial Adviser’s License.


If, however, all you are offering is a Copy Trade Facility/Service it may be possible to incorporate such a business in a low regulation/low tax jurisdiction without needing to apply for any form of Special License. This could potentially be achieved by characterizing your business/offering in a certain way eg:


  1. You could take in investors via the set-up of a Private (non-licensed) Closed End Fund. Click on the following link to read details of how this might be achieved: https://www.dropbox.com/s/vy9xgzj3gtu9dq1/Structuring%20Options%20for%20a%20Non%20Licensed%20Closed%20End%20Fund.doc?dl=0 ;or
  2. You could utilise a tax-free International Business Company (“IBC”) eg a Seychelles or Belize or Nevis or Samoa IBC – which could be contracted to trade an investor’s money in a/the broker’s account under Power of Attorney. Click on the following link to read details of how that can work: https://www.dropbox.com/s/h74029saaaa3mmm/How%20To%20Trade%203rd%20Party%20Funds%20Using%20a%20PoA.docx?dl=0 ;or
  3. Your IBC could enter into a service contract or consultancy contract or an information supply agreement with the “investor” whereby, in consideration of you supplying details of your trades or some other person’s trades as/when placed (or if you supply an introduction to some other service provider who provides the trade data), the investor agrees to pay you a fee (which could potentially be a percentage of the investor’s profits made from such trades). Such an agreement, if drafted very carefully by an appropriately experienced/knowledgeable Lawyer, could get you around the need to apply for a Special License.


Moreover, provided the Company is seen to be managed and controlled from Offshore and, (eg if you live a country that has CFC laws), is seen to be beneficially owned from Offshore, the profits from such a venture could be banked Offshore potentially tax free.


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How To set Up a Tax-Free Company Brokerage Account with Interactive Brokers

Global citizens interested in privacy will have, or should have, noticed the rise of Euro Pacific Bank (“EPB”) over the course of the past 10 years.


The brainchild of ex Lehman Brothers Exec Peter Schiff (who was smart enough to leave Lehmann Brothers before, and in fact predicted, the GFC), Euro Pacific Bank was originally based in St Vincent & The Grenadines but shifted its base circa 2 years ago to Puerto Rico.


This was an extremely savvy move because Puerto Rico is an offshore territory of the US and, as such, is subject to and caught by America’s International treat network. With the US having cleverly refused to sign up to the MCAA (ie the head treaty which gives rise to AEOI ie Automatic Exchange of Information requirements and the CRS ie Common Reporting Standards) this means that one can open a bank account in Puerto Rico (which does not tax interest paid on bank deposits) and avoid the risk of the existence of said bank account coming to the attention of one’s local Revenue Authorities via AEOI/CRS.


Many OCI Clients are professional online traders (see below which explains how/why Online Trading lends itself well to an “Offshore” Corporate structuring plan). By far the most popular Brokerage Platform with OCI clientele to date has been Interactive Brokers.


Since its launch EPB, as part of its product range, has offered in house Brokerage Account Service known as Euro Pacific Trader. Until August this year this facility was delivered via Saxo Bank’s trading platform; But as of August 2019, Euro Pacific Bank customers can now open in house Brokerage Accounts utilizing Interactive Broker’s platform.


Euro Pacific Trader is offered by its subsidiary Euro Pacific Securities Inc. as an Introducing Broker to Interactive Brokers LLC. Interactive Brokers LLC is the custodian, technology provider, and clearing broker to all transactions executed through Euro Pacific Trader and thus the rates & trading conditions are as per those offered by Interactive Securities.


How To Trade Online Using a Tax Free Offshore Company


Online Trading (eg forex trading, share trading, options trading, derivatives trading etc) is an activity which lends itself well to an Offshore Corporate Structuring Plan. To summarise how it would work is:


  • You set up a zero tax Offshore Company eg an International Business Company (“IBC”)
  • The Company is seen to be managed and controlled from Offshore (ie ideally it will have a nil tax jurisdiction resident “Nominee” Director (which is a service that OCI can provide).
  • The IBC opens an account with a Broker
  • You are appointed as the IBC’s authorised trader (ie you place the buy and sell orders on behalf of the company)
  • For all intents and purposes the IBCs trading profits are generated in a nil tax environment tax free/offshore (ie provided the IBC is structured/administered in a particular way)
  • When you need some living/spending money the IBC pays you a wage, or consulting fees or a commission (eg a percentage of trading profits generated)
  • That living/spending money can be paid to your local bank account (which means it would be assessable income wherever you are ordinarily resident for tax purposes – though you should also be able to claim a sizeable amount of allowable deductions eg for home office, car, equipment, insurances, travel, stationary etc etc to reduce the amount of your “taxable” income at home).
  • Lump sums could potentially be drawn down tax free from the IBC (eg by way of an interest only loan – though normal commercial terms would/should apply to such a loan)
  • The majority of trading profits could be reinvested Offshore potentially tax free.


To minimize the chances of your Company being taxed at home (especially if you live in a country which has Controlled Foreign Corporation laws) ideally you won’t want to be seen to be the beneficial owner of the Company. This can best be achieved by including a Private Foundation as part of your Corporate Structure.


Local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to set up a Corporate/Brokerage structure such as that described above.


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How To Invest in Shares Using a Tax Free Offshore Company

Investing in Stocks/Shares is an activity that lends itself well to an “Offshore” Corporate Structuring Plan.


How it usually works is:


(a)  You incorporate a tax-free Offshore Company (“OC”)


(b)  You structure the Company in such a way as to ensure that the Company is  seen to be managed and controlled from Offshore – This can/will typically be achieved by via deployment of a nil tax jurisdiction based “Nominee” Director – which is a service that OCI can provide (ideally, especially if you live in a country which has CFC laws, you’d be wise to also set up a Private Foundation to hold the shares of/own your Offshore Company ie so that you aren’t classified at law as/seen at law to be the “beneficial owner” of the Company)


(c)   Your OC engages a Broker/opens a Brokerage Account


(d)  You advance funds to your OC


(e)  The OC then advances funds to the Broker’s Account


(f)    The Broker acquires the shares for you and registers your Company as the owner of those shares


(g)  The Company you hold shares in pays a return/dividend periodically to your OC (eg yearly). This return is banked into a tax-free Offshore Bank Account in the name of your OC


(h)  Returns paid to your OC can/will be held in an interest bearing bank/deposit account and or reinvested Offshore, potentially free from tax… AND if you incorporate Offshore ie in the right tax free Offshore jurisdiction you should also be able to avoid having to pay CGT ie Capital Gains Tax when you sell your shares (most “Offshore” company jurisdictions do not have CGT laws)


Note if you need to draw on these returns at home there are a number of discreet (& potentially tax-free) ways to go about this. But that’s a discussion for another day….


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