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Our International tax and financial planning with hybrid
companies :
Most people are familiar with a company limited by shares, where
the exposure of its shareholders is limited to the amount paid
for the shares. Beyond this amount, the shareholders cannot be
held personally liable for the debts and liabilities of the
company.
Less familiar is the hybrid company, where the exposure of its
members is limited either by shares or by guarantee. Hybrid
companies offer greater flexibility in the financing and
distribution of profits, and are therefore attractive for
international tax planning purposes. It is interesting to note
that many sporting clubs are organized using the hybrid
structure.
Corporate Structure:
Typically, the shares of a hybrid company will have voting
rights, but no right to receive dividends or to participate in
any way in the income or capital of the company.
The guarantee members of a hybrid company, on the other hand,
will have no right to vote, but are entitled to participate in
the distribution of income and capital. In this way, the control
and management of the company rests with the shareholders
(typically, a professional manager), while all financial
benefits flow to the guarantee member (typically, the client).
The interest of the guarantee members is also characterized by a
pre-determined exposure. A guarantee member is obligated to
contribute to the debts of the company up to a certain specified
maximum amount – for example, $10,000.
The guarantor member is therefore under a contractual obligation
to pay a specified amount of the hybrid company’s liabilities.
In contrast, once the shareholder has paid for his shares in
full, he holds the shares in the company as assets.
Advantages of Hybrid Companies:
Quasi-Trust. Hybrid companies are often used as quasi-trusts, in
which case the shares are issued to professional managers, who
act as quasi-trustees. Unlike normal shareholders, the
professional managers cannot receive financial benefit from
holding the shares. Rather, all financial benefits flow to the
guarantee members, who are in a position not unlike the
beneficiaries of a traditional trust structure.
Flexibility. The hybrid structure offers infinite flexibility as
the different rights and obligations of each class of membership
can be arranged to create structures tailored to the different
needs of the client.
Effective tax planning tool. Hybrid companies offer the
possibility for guarantee members to escape anti-avoidance tax
provisions, which typically determine corporate residency based
on shareholdings or management and control of the company. As
the guarantee members do not own shares or have control, it may
be that anti-avoidance legislation is ineffective in taxing
profits rolled up within a hybrid structure.
Succession. A guarantee member's interest is extinguished upon
death. As a consequence, there are no succession problems, no
need to obtain probate, and there will normally be no
inheritance tax or estate duty implications. New guarantee
members can be elected according to a memorandum of wishes
executed by the deceased, indicating who he wishes to be elected
as guarantee members upon his death.
Privacy The rights and obligations of all members can be set out
in the Articles of Association of the hybrid company, thereby
keeping the terms and conditions of membership private. In
addition, it is normally the case that such a structure will not
bring about any reporting requirement for the guarantee members.
Feel free to contact us for more information about Hybrid
Companies or other alternatives to lower your tax bill legally
at info@sadekya.com.
Sadekya Fiduciary Partners.
Rudsel. J. Lucas TEP, Managing Director
Saliña Galleries Unit A-201
P.O. Box 4750
Curacao, Netherlands Antilles
Telephone: 599 9 4652698
rudsel.lucas@sadekya.com
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