- Limited Liability Corporations
- Hybrid Companies
- Purpose Trusts
LIMITED LIABILITY COMPANIES ("LLC's")
The Working Party, chaired by Bruce Taylor of Deloitte & Touche, has completed its deliberations and the Limited Liability Companies Act has now received royal assent.
The principal factors of the Act in the context of LLC's are:
- it will be a body corporate which is a legal entity separate from its members;
- the members of the company will have their liability limited to the extent of the capital which they introduce;
- management rests with the members although a manager can be appointed;
- taxation of the company will be similar to that of a partnership, the profits of the company will be divided amongst the members and will be taxed in their hands;
- it will have a life which is limited to a period not exceeding 30 years.
The laws of many states in the United States of America permit the incorporation of such companies and the Act follows closely the concepts contained in the Wyoming Limited Liability Company Act.
For Manx tax purposes a member of an international LLC will not be liable to pay Manx income tax on income received from that company. The company, on payment of a fee, will apply to the Assessor for a certificate of International LLC status. The conditions surrounding excluded activities and the manner and timing of the payment of the fee are similar to those contained in the International Business Act.
HYBRID COMPANIES
A hybrid company (a company limited by guarantee which also has a share capital) is being increasingly promoted around the Isle of Man as an alternative offshore structure to a trust.
The tax planning advantages of this entity are limited, particularly for the United Kingdom domiciled beneficial owners. The attraction lies more in the greater flexibility offered by a hybrid than a trust.
A hybrid company is a company formed as a company limited by guarantee but which also has a share capital. There are two forms as follows:-
- a company whose members contribute to the capital of the company and acquire rights, pro rata to their contribution to the capital and are issued with the shares, but who are additionally required to contribute to capital should the company subsequently go into liquidation;
- a company where some of the members contribute to the capital of the company and acquire rights, pro rata to the contribution to their capital, and are issued with shares but who are additionally required to contribute to capital should the company go into liquidation, and the rest of its members are elected into membership without being required to contribute to capital on election but who can be required to contribute to capital should the company subsequently go into liquidation.
Members can therefore be, either, both shareholders and required to contribute to capital upon liquidation; or in only one of these two categories.
Where a company is formed such that the shareholders are in a different category to the non-shareholder members it is possible to separate, completely, control of the company from the beneficial interest. A hybrid can be formed such that professional administrators hold all the issued shares of the company and in whom the voting and administrative powers of running the company are vested whilst the beneficial owners can be the non-shareholder members in whom would be vested all the rights to income and the capital. In this way only the non-shareholding members can actually benefit from the company.
The main uses envisaged for such an entity are listed below:
- A quasi trust - by forming the hybrid with shareholders as professional administrators and non-shareholding members as the beneficial owners, the distinction between legal and beneficial ownership, familiar in the trust form, emerges. A hybrid can therefore be used where trust law is too restrictive, for example:
- for persons living in civil law jurisdiction countries that do
not recognise trust situations;
- where the trust law is too restrictive for the desired purpose
of the entity;
- to avoid the law of perpetuities.
- Family foundations or charities
- Characterisation for U.S. tax planning purposes.
Although the tax planning opportunities are probably limited, the hybrid does offer a very real alternative to the more usual trust structure. It remains to be seen how popular these entities will become particularly as the number of jurisdictions allowed to incorporate such entities will become, particularly as the number of jurisdictions allowed to incorporate such entities is limited. However, it will appeal to those people naturally reluctant about signing away the legal ownership of their assets and it is available only in those jurisdictions which already permit the incorporation of companies limited by guarantee.
PURPOSE TRUSTS
The Purpose Trusts Act 1996 has recently been enacted onto the Statute Book in the Isle of Man.
The Act enables a person to form a trust in the Isle of Man for a period not exceeding 80 years, providing the purpose of the trust:
- is certain, reasonable and possible, and;
- is not unlawful, contrary to public policy, or immoral.
The trust must be created by deed or will; have at least two trustees and must provide for the appointment of a person, independent of the trustees, to enforce the trust.
The "enforcer" will have an absolute right to access any information or document which relates to the trust, its assets, or administration.
A purpose trust is designed for more general use than a usual trust, i.e. it will not be for the benefit of particular identified persons or for charitable purposes.
One of the main uses identified for the purpose trust may be as an asset financing entity in which to hold assets off the balance sheet where accounting standards permit.
We recommend that professional advice is obtained as this brochure has been written in general terms and therefore cannot be relied upon to cover specific situations; applications of the principles set out will depend on the particular circumstances involved.
If you would like further details please contact:
Peter Vanderpump, Bruce Taylor or Nick Williamson Deloitte & Touche Grosvenor House PO Box 250 Douglas Isle of Man IM99 1XJ Tel: +44 1624 672332 Fax: +44 1624 672334
Deloitte & Touche is authorised by the Institute of Chartered Accountants in England and Wales to carry on investment business in or from the Isle of Man and the U.K.
Aug 96
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