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When it comes to protecting not only physical assets but the entire business, many entrepreneurs consider the option of running a legal entity through an offshore trust.
Of course, it is more common to use a trust structure on an individual basis – to protect money, inheritance, real estate, etc. However, it is possible to use trust to protect your business structures. Using this option, you will not officially have the authority to manage corporate assets and will not be liable to creditors and courts as the beneficial owner of the business.
How does a business trust work, where is the best place to open it to a foreigner, and how to competently use this legal tool for delegating authority to manage your shares in a business? We will consider all these issues in more detail in this article. In addition, our experts are always ready to provide you with practical assistance.
To quickly register an offshore trust or foundation for asset protection and business management, contact our experts and get all the necessary services quickly, safely, and on favorable terms!
on offshore structures and jurisdictions
that would best meet your
asset protection goals.
on offshore structures and jurisdictions that would best meet your asset protection goals.
What is a business trust?
In terms of its structure and type of asset management, a corporate business trust is similar to an individual one. The main difference lies in the type of property transferred to trust management and most often completely controlled by the trustee. If in an individual trust these are financial savings, bank accounts, real estate, and inheritance, then in a business trust, companies or stakes in companies are used as transferred assets.
At its core, a business trust is a legal agreement between a beneficiary or multiple beneficiaries (founder/beneficial owner or multiple beneficial owners of the business) and a trustee.
Depending on the trust structure type, business income management may be controlled by business owners or solely by a trustee. In the latter case, the level of asset protection is maximum and ensures the company’s separation from its owners at the legislative level.
How does a trading trust work?
To create a business trust and protect corporate assets from external influence and encroachment, beneficial owner/s of the business conclude a Declaration of Trust with a trustee.
The conditions for creating a trust are described in detail in the Declaration. It contains all the powers and duties of a trustee who is delegated the right to manage/dispose of/profit from the assets of a legal entity or perform other actions.
Once the terms are agreed upon, the trust owner/s sign the Declaration, and the trustee is given a fiduciary duty to act in the best interests of the trust beneficiaries.
- Trustee – an individual or entity that owns the rights and controls the business share in the trust structure.
- Valid length of the trust – can be established by agreement of the parties or be unlimited, but not more than 99 years according to world laws. In the first case, business interests are transferred to trust beneficiaries when the trust agreement ends. In the second case, the profit can be distributed over generations, which should also be considered when concluding the Declaration – you need to specify where the property goes after the expiration date.
- Business trust – a corporate structure with the right to conduct business transactions and make financial profits in favor of its beneficiaries.
- Business trust beneficiary – it can be one person or several beneficiaries at once. In a family business, the beneficiaries may also be heirs. But, most often, business trust beneficiaries are investors and/or shareholders.
- Purpose of creating a business trust – tax optimization, separation of business ownership, protection of assets from litigation and creditors.
Features of trust legal protection may differ from jurisdiction to jurisdiction, which should be studied carefully beforehand. Nevis trust is one of the most reliable options, the registration of which is available with the support of our experts.
Types of business trusts
What are the types of business trusts, and how does this affect the protection of the beneficiaries’ assets? We will try to understand this issue in as much detail as possible and give you an idea about trusts for business and their features.
Grantor offshore business trust
It assumes that the trust is created and controlled by the same person who transfers assets to it and distributes profits. It is also called a simplebare trust and belongs to the category of revocable. The powers of a trustee in such a structure are very limited.
The disadvantages of such a trust are obvious – the grantor and the trust are not treated as separate tax entities. Therefore, the trust income will be taxed. And the direct connection between the settlor and the trust virtually eliminates the protection of the beneficiary’s privacy and property.
Simple offshore business trust
It is similar to grantor trust but has several differences. The trustee distributes income between the beneficiaries, but only within the framework of the finances received from activities. The principal amount placed in the trust cannot be distributed. Simple trusts are prohibited from making charitable donations, and beneficiaries are required to pay taxes on any income they receive from the trust.
Complex offshore business trust
This is a trust in which it is legally permitted to accumulate income, make distributions other than income, make charitable donations, and receive charitable contributions. Like simple trusts, complex ones must file tax returns and may deduct certain expenses.
Subcategories of such a business trust are:
- Accumulation trusts are used, among other things, for business planning and accumulation of profits within the trust. Income can be kept within the trust until the beneficiary obtains the legal right to dispose of the property or be distributed among the beneficiaries (shareholders, investors) at the trustee’s discretion. An accumulation trust is usually managed by the trustee, who decides how to distribute the profit on their own, but always takes into account the owner’s recommendations (based on a letter of recommendation).
- Fixed business trust is a structure in which the category of beneficiaries-recipients of income is predetermined. At the same time, the beneficiaries have the right of ownership within the equity framework (equitable title), which is the trustee’s obligation to distribute income in proportion to the established hierarchy or according to other criteria.
- Offshore discretionary trust – complex trust in which the management of capital and profits is carried out solely by the trustee. This structure implies flexible settings through a letter of wishes from the business owner, which gives advice on how to manage the assets transferred to trust management in the best way. According to the Law (and for inspection bodies), in a discretionary trust, the trustee determines the circle of beneficiaries and subsequently distributes income at their discretion. At the same time, the founder and beneficiaries (shareholders) have no legal connection with the company transferred to the trust management. This excludes the possibility of presenting them with claims and credit obligations.
A discretionary complex trust under the trustee’s complete control is the highest level of protection offered by offshore trusts, including Nevis trusts. Use the advice of our experts and get a full range of services for establishing business trust on a turnkey basis.
Pros and cons of business trusts
Considering a trust as a tool for protecting business assets and making a profit, all legal theses, as well as positive and negative sides, should be taken into account. For example, Nevis trading trust is recognized as one of the safest and most productive tools, which can be emphasized by such advantages as:
- Business confidence – Nevis adheres to all FATF recommendations and, at the same time, has developed its own legislative framework to protect the interests of trusts and their beneficiaries. Nevis trust will have confidence in the world market, and offshore companies can freely use European bank accounts without fear of blocking them.
- Trading confidence in Nevis should also be taken into account when transferring your business to a trust. Building business relationships and establishing trade relations, especially for world-class corporations in export/import and production of goods/services, depends on who will manage the company and from where. At the same time, neither shareholders nor investors will be reflected in the company’s corporate documentation, the management of which, under the law on Trusts, is transferred to a trustee in good standing. In this way, the impact of sanctions on trade relations can be avoided, which is one of the obvious advantages of a business trust.
- Confidentiality and legal protection of offshore trusts – Nevis, with its legal framework, can become an impenetrable fortress for your assets. Nevis does not accept foreign judgments for execution. To put forward claims against the trust and the beneficiary, creditors and other applicants will have to go through a difficult path. They need to come to Nevis, make an advance payment of USD 100,000, and only then file a claim. At the same time, they have no guarantees of a court victory. On the contrary, as practice and statistics show, such cases with business trusts in Nevis have not yet been recorded.
Disadvantages of offshore business trusts include expensive maintenance and management difficulties. However, if there are assets to protect, the trust will help solve the issue within the law framework.
How to create a business trust
A business trust is not always the tool you need for your business planning. It may be sufficient to set up an offshore limited liability corporation (LLC), a partnership, or use another business form.
In any case, before taking the decisive steps to register a trust, we advise you to consult with our professionals, who will provide a range of services:
- choosing a country for registering a business trust in accordance with the tasks and goals of the client
- formation of trust with a complete set of documents and the launch of an offshore structure
- opening additional personal/corporate accounts in banks, NEO banks, or payment systems of the world
- preparation of documents, translation, apostille, and other ways of legalization
- professional officers service for an offshore company, services of a trustee, lawyer, etc.
Contact us and get detailed advice on offshore business trusts!