The seminal concept of company incorporation has proven to be one of the central engines for modern-day economic growth. The consolidation of business entities is rooted in the 17th century when the need arose to encourage entrepreneurs and business people to take more risks and help strengthen the economy.
The foundation of this legal concept is the establishment of discrete pockets of wealth for the company and its owners, meaning the company constitutes a legal entity that is separate from its founders. In such conditions the company owners are not personally responsible (within certain limitations) for company debts that may be accrued and not liable for the defrayment of payments, yet may still reap the fruits of the company's success. Additionally, as it is the company that is contractually bound to clients and suppliers, they may not demand or litigate against shareholders to personally make payments should the company prove insolvent. This is why such companies are called “limited companies”.
Company founders hold ownership rights to a company through share certificates, a document that establishes and defines all legal ties between the company and its owners.
There are exceptions to this rule, such as cases of flagrant crimes whereby shareholders commit fraud, attempt to discriminate company creditors, or act in a manner that subverts the purpose of the company while assuming unreasonable risk in respect to its ability to repay its debts. In such instances the court, within certain parameters, may order “raising the curtain” which separates the company's assets from the shareholders' assets, and attributes the company's debts to its shareholders.
The term “offshore” refers to the establishment of a company in a country other than the homesite in which the establishing company conducts its business activity. Over the years this term has become synonymous with offshore tax havens as they are exempt from local taxation in that country.
The process of company establishment and registration, including its obligations and rights, are determined by local legislation and vary greatly from country to country.
We recommend you consult an attorney and/or accountant before choosing which area of legal jurisdiction is suitable for your offshore business.
While company management is obligated to act in furtherance of company interests and not its shareholders, there are different perceptions regarding the purpose of the company and its best interests. Generally speaking, the purpose of companies is to act in accordance with business considerations in order to increase company profits, meaning to act in the furtherance of shareholder interests (unless a conflict of interests exists between the company and its owners). However, there are alternative models founded on the idea of companies acting for all interested parties, by which company directors must also take into account the rights of employees, suppliers and the community in general.
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