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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Belize LLC versus Belize IBC

We are regularly asked by clients looking to incorporate in Belize should I set up a Belize LLC or a Belize IBC?


So let’s look at the features of each beginning with the Belize LLC…


An LLC (Limited Liability Corporation) is, effectively, a hybrid of a Limited Company and a Partnership.


It’s like a Company in that that liability of the Company is limited to the capital invested and assets purchased by the Company.


Like a partnership it’s a flow through entity: An LLC does not have to file a tax return; the nett profits are passed through to the members of the LLC (members are to an LLC what shareholders are to a Limited Company) who are responsible for taxes (if applicable) in their country of tax residence (ie same tax treatment as partners in the case of a Partnership).


From a member/partner’s viewpoint an LLC is superior from a liability perspective to a Limited Partnership (“LP”) because in the case of a Limited Partnership (which is constituted by a Limited Partner and a General Partner) one partner can be made liable for the debts of the partnership. In the case of an LLC the liability of the members is limited to the extent of the member’s capital contribution (unless a personal guarantee has been given by a member to a supplier of the LLC).


LLC members can fully participate in the management of the LLC (which is different to an LP – in the case of an LP the Limited Partner usually can’t participate in the management of the enterprise without risking his/her Limited Liability status).


Key Benefits include:

·         Privacy: There is no public register of owners/members or Directors/Managers in Belize

·         Tax Effectiveness: Belize LLCs are not liable to corporate or business or any other form of tax in Belize

·         Simplicity: There is no requirement in Belize to prepare annual accounts or appoint an auditor

·         Flexibility: Belize LLCs can be used to own/operate a wide range of businesses as of right

·         Asset Protection: Before you can sue a Belize LLC you have to pay a deposit being an amount equal to the greater of (i) one half of the amount claimed or $US50,000 whichever is the greater


Other features of the Belize LLC Law include:

  1. A Belize LLC:

(a)  can be structured according to its own rules rather than being dictated to by statute

(b)  is a legal entity with separate rights and liabilities distinct from its members & managers. (This means nobody other than the LLC itself can be made liable for the debts of the LLC)

(c)   Somebody suing a Belize LLC member at best can only have the members rights assigned to him; he can’t participate in the management of the LLC

  1. Belize doesn’t recognize foreign judgments. Only a judgment made by a Belize Court can be given against a Belize LLC
  2. LLCs from other jurisdictions can migrate to Belize and vice versa (ie a Belize LLC can redomicile and become eg a Nevis LLC)
  3. Civil legal proceedings against a Belize LLC must be held in private (and there are penalties for unauthorised disclosure).

Set Up cost: $UD1,200 From 2nd year $890


Belize Companies & Compliance


Belize LLCs are not subject to any reporting requirements, have no Belize tax obligations and ownership/management information is not publicly accessible.


However, it must comply with our usual KYC/DD requirements (same as IBCs).


Also, there is no limitation on LLCs owning IP Assets.


The setup requirement for an LLC is similar to that of an IBC (similar information required on application form). There is an important distinction, however, in that, because of economic substance, the activity of the IBC needs to be specific so as to determine if it is carrying on a relevant activity or not.


All IBCs need to obtain a TIN (Tax Identity Number) from the Belize Registry. Having a TIN does not mean that the IBC is liable for tax in Belize. The purpose for this initiative is strictly for regulatory and tax authorities to efficiently monitor the status of the IBC.


Regarding the current tax position of the Belize IBC, there is a presumption of residency for all entities registered in Belize. This means that moving forward  Belize IBCs will be required to file a tax return by the first tax filing date unless the company claims to be tax resident in an outside jurisdiction.  For non-grandfathered Companies, the first tax filing date is 31st March 2021, and for grandfathered Companies, this is 31st March, 2022.


The foregoing requirement will not apply to an IBC that:

  1. Is tax resident in another country (other than a country on the European Union list of non-cooperative jurisdictions for tax purposes);
  2. Has no permanent establishment in Belize
  3. Files an information return at the same filing dates mentioned above, wherein said form will include the jurisdiction of which the company is a tax resident, the beneficial owners of the company owning or controlling 5% or more, as well as all direct and indirect legal owners, including information on the tax residency of such legal or beneficial owners.


Tax resident IBCs are subject to Business Tax, which is a tax on gross revenue and ranges from 1.75% (for trade) to 6% (on professional services).


Local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to set up a Company 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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