More reasons to incorporate offshore.
Real World Corporations and What the Textbook Says
Most corporations formed today are small businesses. In fact,
many only have one person as the sole shareholder, director, and
officer. The main reasons for people to incorporate today are
liability protection and tax advantages which can only be gained
through the corporate entity. In this section we will look at
the liability protection incorporating can offer. We'll also
take a look at why many accountants, and even lawyers, give
fatally flawed advice like, "don't incorporate until you're
making at least $50,000 a year." Then we'll look at the myths
and misconceptions such advice is founded upon. When you are
through with this information you'll know why to incorporate.
Plus, you'll know how to get protection and savings most people
only wish for.
Incorporating: The Key to Limited Liability and Personal
Protection
As you know, a corporation is a legal person. As a legal person
it is separate from its stockholders, its officers, its
directors, and its employees. This means if a corporation is
sued, all it can lose is what it has. People who sue the
corporation cannot attach the assets of the individual
Shareholder. The corporation limits the liability of the
individual person who is associated with it to the extent of his
actual investment in the company.
Let's say you set up a corporation, a legal person. Let's say
you put $10,000 into that separate legal person in exchange for
stock. You now own stock in the corporation and the corporation
has $10,000. Now let's say the corporation you formed takes
$7,000 and buys a vehicle to use in the corporate business.
Let's say it takes the rest of the money and hires an employee.
You tell your corporate employee to take the corporate vehicle
and go run an errand. Your trusty employee goes out with the
corporate vehicle and proceeds to run over someone. Now you have
a problem, because the negligence of that employee will be
imputed to the corporation. It almost always is, and you will
probably be no exception.
The good news is you can rest a lot easier than many people in
this situation, because you had the foresight to incorporate
your business. All that you have at risk is the $7,000 car and a
couple of thousand dollars in cash. Not bad when you consider
all of your personal assets would be on the line otherwise.
A wrongful death lawsuit such as the one that would result in
our example could easily run into millions of dollars, exceeding
insurance policy limitations and coverage. A lawsuit like this
would ruin most people; incorporation is needed protection. I
cannot urge people strongly enough to be prepared. Prepare for
the worse, and hope for the best. There are also lawsuits that
come from employees to consider, such as wrongful termination,
discrimination or sexual harassment.
There are customers who could sue for service failures, loss
profits, damage to reputation, slander, and more. There are
suppliers who could sue, people who just walk across your yard
and slip or step into a hole, can sue. The possibilities go on
and on.
Do These
Lawsuits Happen in the Real World?
According to the National Center for State Courts more than 19
million civil lawsuits were filed in the United States in 1992
alone. This trend is continuing. According to Jack Farls,
President of the National Federation of Independent Businesses,
in an article printed in "The Chronicle" of Centralia,
Washington on May 19, 1995, "the toll of just one lawsuit can be
so great that guilty or innocent, many firms shut their doors,
lay-off their employees and vanish into legal graveyards."
Everyone knows about the famous multi-million dollar McDonald's
hot coffee suit. In the months since that jury award, dozens of
similar suits have been filed against restaurant owners.
Sexual harassment is more and more a danger faced by small
businesses. This past June, Wal-mart was on the receiving end of
a $50 million sexual harassment verdict from a Jefferson City,
Missouri jury.
Still other outrageous lawsuits fill today's newspapers.
According to an article in the Harrington, Texas "Valley Morning
Star" from August 7, 1995, a Texas Wal-mart store was charged
with a $5.5 million jury verdict because it allegedly sold .22
caliber bullets to a 19 year old teen, who put them into a
pistol that was accidentally discharged on a fishing trip.
Even more outrageous is the case involving an Alabama physician
who purchased a brand new black BMW. The physician took the BMW
into a body shop to have it "gussied up" and the body shop
discovered that the car had been previously painted. Since it
had been slightly damaged in shipment, BMW repainted the car.
The physician, doing what seems to be all the rage, sued BMW and
as a result won $4,000 in compensatory damages and $4 million in
punitive damages because his car had been painted twice. The
examples of ridiculous and outrageous lawsuits go on and on. The
fact of life in the 90s is that this trend is real and it could
happen to you.
The courts are full of real life examples of huge lawsuits. If
you are unincorporated and you fire an employee, or just get one
upset, you could be
facing a lawsuit for wrongful termination and/or intentional
infliction of emotional distress, emotional damage, breach of
covenant of good faith and fair dealing, and on and on. The
lawsuit could not only take business assets but personal assets
of yours as well. Incorporation would limit your liability and
protect you.
It's a risky world out there in business. Incorporating doesn't
eliminate lawsuits, but it cuts down on a person's deep pockets.
Generally, all an incorporated business risks is what's in the
corporation. The personal assets of Shareholders are not at
risk, valuable protection in a litigious, dangerous world.
Why should a business person risk all of his own assets he has
spent a lifetime building up? Why should he risk his family's
welfare? There's no good reason, especially when they can do a
simple thing like incorporating to limit their exposure. It's
such a simple, economical process and yet it's overlooked so
often or put off until it's too late.
Two Corporations for Liability Protection
If one corporation is good, are two corporations better? Many
times yes. As the litigation explosion heats up, many business
people are finding that with two corporations they can separate
their risks and minimize their lawsuit exposure.
Let's say you have two business locations. Put them into
separate corporations and run each as a separate entity. This
has the desirable effect of limiting the potential for loss in
any one business location to that one location. The other
business locations are not at risk. Other business people go
even further. They'll set up two corporations, one corporation
which conducts a certain business enterprise, and the other
business which leases it a great deal of its assets. The chances
of the leasing corporation being sued are slim since its main
customer is the other corporation which you still own. If the
lessee corporation is sued, while there are some assets at risk
the bulk of the assets are owned by another company that is not
subject to the suit.
Also consider the possibility of putting different assets into
different corporations to spread out the risk. For example,
let's say you own multiple apartment buildings. Put each
apartment building into a separate corporation, that way, if a
tenant living in one apartment building sues, that suit is
brought against the corporation that only owns one apartment
building. Only one apartment building is at risk and the others
are secure. When you consider it, this is like buying awfully
cheap insurance that will protect your assets.
Off-Shore Corporations
The is a growing interest in the U.S. concerning the use of
offshore corporations, banking and money strategies. The reasons
are fundamental:
1. The increasingly litigious nature of our society,
2. An evident decrease respect for personal property and
3. An ever growing erosion of personal, business and financial
privacy.
Structured properly, the utilization of a foreign corporation
for your existing business needs can greatly advance your
business interests and provide many legal means by which you can
reclaim your rights and begin to live a more private, secure and
financially rewarding life.
In recent years, Caribbean jurisdictions have taken the lead as
the most attractive and convenient offshore corporate domiciles.
The support of their governments in development and
administration provides the international business owner and
investor with total cooperation and, in many cases, a very
favorable tax climate specifically structured to attract foreign
investors.
The advantages of Panama, Gibraltar, IoM, the British Virgin
Islands provide for a stable, convenient and discreet domicile
to carry out business activity when the use of an offshore tax
haven would be beneficial or necessary.
FIND/BUY RELATED
BOOKS!
Whilst
every effort has been made to ensure that the details contained herein are correct and
up-to-date, it does not constitute legal or other professional advice. We do not accept
any responsibility, legal or otherwise, for any errors or omissions.
Please go to our
Uses of offshore Companies Page where you will
find interesting information on the benefits of using offshore companies and trusts for
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