This article is aimed at small and medium-sized businesses operating in emerging economies, where often the shareholders and directors are not nationals of the country where their business is resident.
Entrepreneurs often start a business in another country for a multitude of different reasons and will begin trading, or open in multiple markets, to pursue opportunities.
Revenue drives business and often issues like succession planning are left until it is too late and a key person dies, or partners split, even causing the business to collapse or maybe suffer a significant set-back.
These types of businesses may also require complex banking arrangements, especially if they are trading in different currencies. In some emerging economies, moving money from one country to another can still be complex and rather expensive.
For some businesses, which have income coming in from multiple suppliers and where the income comes from an area outside the country where the main office is based, this can create opportunities. It may also be worth considering setting up an offshore company, with offshore bank accounts, which can receive money from foreign partners.
The use of an ‘offshore company’ can potentially create tax-saving opportunities in certain parts of the world. It may also be worthwhile setting up an offshore company, so that it owns the ‘onshore company’. This may be an opportunity to create ‘business succession planning’ by this strategy. With an ‘offshore company’ in many jurisdictions, it is possible, if one shareholder dies, for assets to pass to surviving shareholders quickly and efficiently and avoid estate duties and other taxes.
There are many countries in the world now which specialise in offshore companies and trust structures for companies and individuals. These structures have proved robust over time and offer great business succession opportunities for many businesses. These jurisdictions are often, either ‘tax free,’ or offer a very low tax base for companies wanting to list in these jurisdictions.
Business succession planning can be arranged by the use of offshore companies or trusts, which are not expensive to set up and run. It is also possible to further plan for unexpected events, with the use of ‘keyman’ or ‘business insurance’.
For small or medium-sized businesses, the death of a key shareholder can be devastating to the business and cause it to fail. Where you only have one key person in a business, having some kind of ‘keyman’ or ‘business insurance’ may allow the business to continue, thus providing far greater benefit to the deceased shareholder’s beneficiaries than if the business were to fold.
Having a Keyman or Business insurance will allow the business to continue, by providing a fixed amount of money to the business on the death of a shareholder or key person. This will allow the business to continue, by providing funds to either ‘pay off’ the beneficiaries of the deceased shareholder, or to provide funds to replace the deceased with someone able to continue to run the business.
Unfortunately, surveys have found that the vast majority of small and medium sized businesses do not have a business succession strategy. This is often because it is perceived as too complex to set up, or no thought has been given to it at all, as the focus of a new business is on generating revenue and getting started.
The consultants at Astra have decades of experience working with these types of businesses, specifically in the Middle East, Far East and Europe. Our consultants are independent and we do not favour any particular jurisdiction or provider for these types of services.
We charge a fee for consultations and support setting up structures, suitable for different companies and we also offer ongoing advice and support. Initial contact is normally made by Skype conference or telephone and is free of charge. After an initial meeting, we will provide recommendations and the cost of advice and setting up of applicable companies or trusts.
Offshore Structures - when may they be suitable?
If the business is:
Operates in multiple jurisdictions
Has shareholders living in different countries
Shareholders are not native to the country where the business is located
Receives fees or commissions from partners outside the country where the business is based
To help with succession planning and help eliminate problems with estate planning and estate tax
To provide opportunities to reduce tax paid on income, which comes from outside the ‘home country’ receives fees or commissions from partners outside the country where the business is based
If you'd like to discuss this over the phone with me for free, please reach out to me so we can schedule a time to chat.