Offshore Company Formation: The Ultimate In Asset Protection

If you live in the United States, then you are much more likely to be sued for some frivolous claim than any other place in the world. Protection from such frivolous attacks can be found in the formation of an offshore company, shielding one's assets from U.S. judges and creditors.

When forming an offshore company, there are basically two different entities to chose from. The most popular offshore entity is the International Business Corporation or IBC. This is the analogy to the traditional C Corporation in the United States. International corporations often have one big benefit, the corporate tax rate is much lower and often 0% in many offshore jurisdictions trying to attract foreign money.

The tax savings of an IBC are obvious. One can accumulate profits at a lower or non-existent tax rate and then pay taxes only when dividends are distributed. However, for U.S. citizens this is not quite so easy as there are a variety of foreign controlled corporate rules that can require the income of the corporation to flow directly to the shareholder on top of other draconian measures that make it impractical for most U.S. citizens unless they have foreign partners or can structure the business in such a way to avoid the penalties.

For this reason, most U.S. business owners should consider forming an offshore LLC. The tax treatment is similar to the domestic LLC. More importantly offshore jurisdictions such as Nevis and Belize do not respect U.S. judgements, do not allow contingency fees for lawyers, require a substantial bond to be put up to sue you, and require the plaintiff to hire a high-priced local attorney. Thus, these features should deter virtually all frivolous lawsuits against the business.

To make this asset protection strategy work, after the offshore company formation you will need to transfer as many business assets as possible overseas so that U.S. judges cannot get access to them. Primarily this will include offshore bank accounts in good jurisdictions like Hong Kong, Singapore, and Switzerland. Property in the U.S. can be held by US LLCs owned by the foreign LLC to give you some measure of protection, although assets in your country of residence are always less secure than assets outside of the country.

The process of offshore company formation is started by contracting with a local lawyer in the jurisdiction to draft the articles of incorporation and company by-laws and serve as a registered agent for the company. The registered agent serves the same purpose as one in the U.S., being responsible for receiving notice for any legal action brought against the company. Note that as a U.S. citizen you will also likely have to fill out additional paperwork with the IRS informing them that you now have a foreign company, and foreign bank account assets if the total exceeds $10,000.

For those who are fed up with sue-happy lawyers in the United States, offshore company formation could be the key to giving your piece of mind over your financial future.