The corporate alterative to trusts ad foudatios The corporate alterative to trusts ad foudatios THE ISLE OF MAN ( MANX ) COMPANY LIMITED BY GUARANTEE AND HAVING A SHARE CAPITAL ( THE HYBRID COMPANY ) Itrust Max 1
Notes THE ISLE OF MAN ( MANX ) COMPANY LIMITED BY GUARANTEE AND HAVING A SHARE CAPITAL ( HYBRID ) IT IS IMPORTANT TO NOTE THAT WHILST THE MANX HYBRID HAS BEEN DESCRIBED AS AN ALTERNATIVE TO TRUSTS AND FOUNDATIONS, LEGALLY, IT IS NOT A FOUNDATION (OR STIFTUNG ) OR TRUST BUT A FORM OF LIMITED COMPANY. ALTHOUGH IT CAN BE STRUCTURED TO REPLICATE MANY OF THE PRACTICAL FEATURES OF A FOUNDATION OR TRUST IT IS SUBJECT TO THE LEGAL CONCEPTS OF A COMPANY. OTHER IMPORTANT DIFFERENCES ARE:- 1.) The stiftug or foudatio is ot a compay/corporatio. The Max Hybrid is a corporate etity. 2.) The foudatio ormally has o Members. The Max hybrid must always have Members. 3.) A private foudatio may ot carry o trade or busiess uless it is of a secodary ature. A Max hybrid ca carry o ay legal trade or busiess. 4.) A private foudatio s miimum capital requiremets are more demadig tha a Max hybrid s. A Max hybrid has o miimum capital imposed by law. 5.) Whereas doatios by a fouder to a foudatio o formatio may be subject to a etry fee uder iheritace tax ad gift tax, there are o such levies i the Isle of Ma o doatios to the Max hybrid from it s Beeficial Ower. 6.) Max compaies which have a turover of less tha 5.8 millio do ot require a audit.
The corporate alterative to trusts ad foudatios THE ISLE OF MAN ( MANX ) COMPANY LIMITED BY GUARANTEE AND HAVING A SHARE CAPITAL ( THE HYBRID COMPANY ) Cotets 04 08 11 13 16 INTRODUCTION What is a Max Hybrid Compay? Uses of Max Hybrid Compaies Advatages of a Max Hybrid over a Trust ILLUSTRATIONS The Max Hybrid as a alterative to a Trust The Max Hybrid as a alterative to a Foudatio FLOW DIAGRAMS Figure 1 Figure 2 QUESTIONS Frequetly asked questios CONTACT INFORMATION
The corporate alterative to trusts ad foudatios Itroductio The cocept of trust dates back to the Aglo Saxo times ad has bee used extesively i estate plaig i the Eglish speakig world. However, the trust does have its limitatios, especially i relatio to taxatio, as may jurisdictios view beeficiaries as beig quasi owers. The trust also has limited use for persos located i civil law jurisdictios due to a lack of legal recogitio. The family foudatio has ofte bee the preferred vehicle, but the foudatio ca ad does have its deficiecies. A corporate solutio for the problems ecoutered with trusts ad foudatios has existed for some time ad is rapidly gaiig popularity. The solutio is the Max hybrid compay; a versatile corporate vehicle, which ca provide may of the estate plaig advatages of a discretioary trust without the historically associated difficulties. This guide sets out i a simple ad clear way the characteristics of the hybrid compay ad highlights importat differeces from a trust. Itrust Max 4
The corporate alterative to trusts ad foudatios What is a Max Hybrid Compay? The Isle of Ma Compaies Acts 1931 2004 ad 2006 provide for hybrid compaies. I its basic form, the Isle of Ma hybrid compay is a compay limited by guaratee but it also has a share capital ad thus has two classes of membership; Guaratee Members ad Shareholdig Members. As a geeral rule, a Guaratee Member may also be a Shareholder. The above terms are explaied as follows: it beig woud up whilst isolvet. The liability exists for the paymet of the debts ad liabilities of the compay whilst the payer is a Member, cotracted before he or she ceased to be a Member or withi oe year after ceasig to be a Member; Hybrid, a Isle of Ma usage rather tha legal term capturig the essece of a cross betwee a compay limited by guaratee ad oe limited by shares. Max, because it is a Isle of Ma registered compay; Guaratee Member, because each Guaratee Member udertakes to pay a previously agreed sum (e.g. 10) to the assets of the compay i the evet of Itrust Max 5
The corporate alterative to trusts ad foudatios Uses of Max Hybrid Compaies By its very ature, a Max hybrid compay ca be used: A.) to replicate: Some of the applicatios of a trust i a corporate form which may be particularly beeficial for those from civil law jurisdictios where the trust cocept is either ot recogised or accepted; A private family foudatio for estate plaig purposes. B.) for icorporatig etities such as: A club or trade associatio; A charity. Additioal features of this type of compay are: It is ot required to disclose details of its membership (guaratee or shareholdig) o its aual returs o public file; Beeficial owership is ot o public record. All Max compaies are residet for the purposes of Max tax ad pay tax at zero percet uless they derive their icome from Max lad or property or other specified services. Shareholders who are residet outside the Islad ca receive distributios without ay liability to Max tax. Itrust Max 6
The corporate alterative to trusts ad foudatios Advatages of a Max Hybrid over a Trust Compay law regulates the hybrid ad is more certai tha trust law, which has may ucertaities ad iterpretatios; Subject to its costitutioal documets or ay regulatory or licesig requiremets it ca trade without restrictio, thereby providig a more flexible etity tha a trust; It ca be more versatile tha a trust i that it is capable of beig used to achieve several objectives; It has cotiuity ad ca last idefiitely, ulike a trust, which is geerally subject to the rules agaist perpetuity (perpetuity period of a Isle of Ma trust is 150 years); Ulike the trust there is ulikely to be ay problem over beig recogised as a icorporated body; It is a legal etity with limited liability, ulike the trust where the Trustees ca face ulimited liability. The Beeficial Ower, though legally fully divested of his assets, ca at the same time exercise a measure of cotrol over them; Itrust Max 7
The corporate alterative to trusts ad foudatios Illustratios The Max Hybrid as a alterative to a Trust (see figure 1 o page 11) The hybrid compay ca have several classes of member ad the typical compay has two classes of members: Shareholdig Members: who cotribute to the compay s share capital ad have full votig rights ad may or may ot have rights to ejoy ay distributio of icome or capital from the compay; Guaratee Members: these members do ot hold a share i the compay but agree to cotribute a fixed amout to the compay s capital i the evet of isolvet liquidatio. They may have limited votig rights, but usually receive distributios of icome ad capital at the discretio of the Directors. As such, although of differet legal cocept, they ca be give a budle of rights, which although more limited, ca as a practical matter replicate may rights of beeficiaries of a trust. The Hybrid s ability to allow ew members at the discretio of the directors, which although of differet legal cocept, may be likeed to the right ofte give to trustees to excercise their discretio to add additioal beeficiaries to the existig class of beefciaries, eablig them to receive distributios; Guaratee Membership is ot ormally trasferable, but may be coditioally assiged thereby makig it potetially trasferable. Some matrimoial lawyers are believed to hold the view that this may assist i protectig family assets i the compay from potetial attack i cases of divorce, however this should be the subject of detailed advice from a family law expert; The Board of Directors (while havig differig legal obligatios to trustees has bee likeed to beig i the aalogous situatio of trustees) is elected by the shareholdig members. Itrust Max 8
The corporate alterative to trusts ad foudatios Illustratios (cotiued) The Max Hybrid as a alterative to a Foudatio ( Astalt/stiftug ) (see figure 2 o page 12) A foudatio is a etity by which assets ca be held ad used for specific charitable or private estate plaig purposes. Whe structured as a private family foudatio, the Max hybrid s Directors have a resposibility for the actual maagemet of the compay. They are ormally appoited by the Shareholdig Members ad usually serve o a aual basis, subject to re-electio. Depedig o its structure, it may have classes of Directors ad Members: e.g. Geeral Directors, Fouder Directors, Fouder Members ad Shareholdig Members. Typically the Fouder Directors are elected by the Fouder Members. The Fouder Members are ormally from a family or class of persos with special rights such as omiatig Directors for electio ad cotrollig the board i may other ways. The Fouder Directors are usually appoited idefiitely. A Shareholder or Member exercisig a elemet of cotrol i a similar way to a Protector ca be appoited who ormally has a close relatioship with ad kowledge of the perso settig up the hybrid a Settlor i the parlace of a foudatio ad his family ca be appoited with certai veto powers over the Board of Directors. Though his fuctios may be likeed to that of a Protector of a trust, i this cotext his role is ot a fiduciary oe as may be the case of the Protector of a trust. The foudatio s assets usually come by way of a gift or doatio from the Fouder who trasfers such assets to the foudatio. If the Fouder is to have cotiuig cotrol the he may be elected as a Fouder Member ad though Members of the foudatio are ot usually required to subscribe o etry, the assets could be ijected by way of capital subscriptio (a etry subscriptio) of a ew Fouder Member. Itrust Max 9
The corporate alterative to trusts ad foudatios Illustratios (cotiued) Summary Fouder trasfers assets ito the foudatio; Members trasfer assets to the hybrid; Assets are beeficially owed by the foudatio; assets are beeficially owed by the hybrid The Directors exercise cotrol over the assets; There may be a Shareholder or Member i a similar positio to a Protector of a trust to veto certai actios of the Board. There may be three or more types of members: Shareholdig Members with o rights of participatio but who appoit directors; Beeficiary Members who have rights of participatio but have o rights of maagemet; Fouder Members who may have rights to beefit ad may have some cotrollig/ supervisory powers; The Max hybrid ca be established without the eed for ay iitial fudig, although like ay compay they must ot be allowed to operate i a isolvet maer. Civil law foudatios must have a miimum capitalisatio. There may also be two classes of directors: Fouder Directors who may be from a desigated class (e.g. the Fouder Member ad their close family) who may have powers to omiate persos for electio to the Board or as Members. Effectively a cotrol group; Geeral Directors ormally appoited by the Shareholdig Members after omiatio by the Fouder Directors ad who maage the foudatio s affairs o a day-to-day basis. Itrust Max 10
The corporate alterative to trusts ad foudatios Flow Diagrams Figure 1 Aalogous to Protector 4 Beeficial Ower Family 1 7 6 2 8 Guaratee Members 1 Board of Directors 5 Hybrid Holds Assets 8 Shareholdig Members 1 3 1. Beeficial Ower omiates Guaratee Members who are elected by the Board of Directors. 2. Beeficial Ower trasfers assets to hybrid. 3. Board of Directors allot shares to Shareholdig Members. 4. Beeficial Ower chooses perso whose coset may be required to certai major decisios aalogous to a Protector of a trust. 5. Board of Directors maage hybrid assets. 6. Board of Directors ask for coset o certai major matters. 7. Perso whose coset is required aalogous to a Protector exercises power of coset or veto. 8. Guaratee Members ad Shareholdig Members ow the compay. Itrust Max 11
The corporate alterative to trusts ad foudatios Flow Diagrams Figure 2 1 4 6 Aalogous to Protector 7 Beeficial Ower 2 Family 1 Fouder Director(s) Geeral Director(s) Beeficiary Member(s) 5 8 Hybrid Holds Assets 8 8 1 Fouder Members Shareholdig Members 3 1. Beeficial Ower omiates Beeficiary Members, Fouder Members ad Fouder Directors. 2. Beeficial Ower trasfers assets to hybrid. 3. Fouder Members appoit Fouder Director(s). 4. Fouder Directors omiate Geeral Directors. 5. Shareholdig Members appoit Geeral Directors. Itrust Max 12 6. Beeficial Ower appoits a Shareholder of Member whose coset is required to the implemetatio of certai major decisios aalogous to a Protector of a trust. 7. The Shareholder or Member whose coset is required to certai major decisios of Geeral Directors ca withhold coset to certai decisios. 8. Beeficiary Members, Shareholdig Members ad Fouder Members ow the compay.
The corporate alterative to trusts ad foudatios Frequetly asked questios 1.) How ca the cliet keep cotrol over the assets which he trasfers to the compay? By beig appoited either a Fouder Director/Member, with power to appoit ad cause the removal of the Geeral Directors. Additioally, he ca have a Shareholder or Member appoited whose coset is required to certai major decisios similar to a Protector, who will most likely be a close ad trusted family fried whose coset would be required by the Board before carryig out certai actios. 2.) Who will act as the shareholdig members of the compay? Nomiee compaies will ormally act as the Shareholdig Members, who will execute Declaratios of Trust i favour of the cliet. 3.) Ca beeficiaries receive distributios of the compay s icome ad capital? Subject to their tax status i their ow jurisdictios, distributios ca be made to them. 4.) Ca the beeficiary members of the compay force the directors to make distributios to them? This ca be avoided by a suitable clause i the compay s Articles of Associatio, which would give the Directors sole discretio over distributios, which may be subject to cosets required by ay Shareholder or Member put i a aalogous positio to a Protector. Itrust Max 13
The corporate alterative to trusts ad foudatios Frequetly asked questios (cotiued) 5.) How ca the cliet protect family assets agaist o-blood relatives or a icapable family member who stads the risk of losig assets? By suitably drafted clauses i the Articles of Associatio, forbiddig trasfer of Beeficiary Membership to o-blood relatios of the Fouder Member or termiatig the membership of a Beeficiary Member who is declared bakrupt or icapable. By the Directors electig a perso to Membership oly upo omiatio by the cliet or ay other Beeficiary. This may require detailed advice from a family lawyer. 6.) What happes whe a beeficiary member dies; ca his assigs (those whom the member has made etitled) or successors automatically become etitled to his membership rights? It ca be a requiremet i the Articles of Associatio that o such assigs or successors ca become automatically etitled ad that the membership of the deceased termiates with death. Ay successor Member ca be omiated by the cliet or other Beeficiary Member, who will have to be formally elected by the Board. 7.) What level of aoymity ad cofidetiality ca the cliet ejoy? Cofidetiality is assured for all legitimate purposes. Names of members are ot required to be disclosed, or are the details of the Beeficial Ower required o public record. 8.) Are there ay restrictios o the compay s tradig activities? So log as there are o restrictios by law, a Max compay ca do aythig that a idividual is permitted to do. 9.) What if the family caot work with the perso excercisig power aki to those of a Protector? The perso ca be removed, i accordace with the provisios i the Articles of Associatio. 10.) Are there ay Isle of Ma tax beefits? All Max compaies are residet for the purposes of Max tax ad pay tax at zero percet uless they derive their icome from Max lad or property or other specified sources. Shareholders who are residet outside the Islad ca receive distributios without ay liability to Max tax. Itrust Max 14
The corporate alterative to trusts ad foudatios Frequetly asked questios (cotiued) 11.) How ca the Directors be chaged if the cliet is dissatisfied with them? The Shareholdig Members ca always remove them. 12.) How are assets trasferred to the compay? Either by way of gift, loa or as a membership etry subscriptio. 13.) Will aual accouts ad audits be required ad will the accouts be o public record? Isle of Ma compay law requires all compaies to prepare aual accouts ad lay them before the compay s Members i geeral meetig each year. For private compaies, there is o requiremet to file these accouts ad they are therefore ot o public file, private compaies ca also (via a suitable clause i the Articles of Associatio) elect to dispese with the requiremet to lay the accouts before its Members i geeral meetig ad to dispese with audit. 14.) Is the hybrid compay recogised everywhere i the world? As a corporate etity recogised by statute there is ulikely to be ay difficulty i ay jurisdictio. 15.) How log is a Isle of Ma compay allowed to cotiue i existece? I perpetuity. It ca be liquidated at aytime the cliet wishes. 16.) Ca the cliet himself beefit from the compay s icome ad capital? Yes. 17.) How log will it take to icorporate the hybrid compay? Aythig from a day to oe week, subject to ame approval. I urget cases, a shelf compay may be used ad later chage its ame ad/or Memoradum ad Articles of Associatio. 18.) How reliable is the hybrid ad how log has it bee i use? It is very reliable, havig bee used sice 1865 ad becomig more popular i recet years. 19.) Does the Isle of Ma have ay disclosure agreemets with EU coutries? The Isle of Ma does have tax iformatio exchages agreemets (TIAs) with various coutries. Please ask our team for a updated list. Itrust Max 15
The corporate alterative to trusts ad foudatios Cotact Us ITrust (Max) Limited are well placed to provide cliets with best value services, sice we: Are dedicated professioals servig oly professioal cliets; Are log established with a solid track record; Ca provide log term cotiuity of service; Have complete i-house professioal expertise; Are located i strategic cetres; Have multiligual staff, able to deal with cliet requiremets; Have very solid bakig coectios. To fid out about the services we are able to offer, please direct ay correspodece to the followig: Itrust (Max) Limited 1st Floor, 29-33 Bucks Road, Douglas, Isle of Ma, IM1 3DE Tel: +44 (0) 1624 616544 Fax: +44 (0) 1624 616545 E-mail: paul.murtagh@itrust-max.com www.itrust-max.com Disclaimer Whilst we have take all reasoable measures to esure that the iformatio cotaied i this brochure is correct ad it is believed to be correct at the time of pritig, we caot accept ay resposibility or liability for ay errors or omissios from ay iformatio cotaied i this brochure or for ay cosequeces arisig. Readers of this brochure are advised, therefore, ot to rely o the iformatio cotaied i this brochure but to obtai advice o ay particular matter from our office directly. Itrust (Max) Limited is Licesed by the Fiacial Supervisio Commissio as a Corporate ad Trust Service Provider. Registered i the Isle of Ma No: 026131C Registered Office: 1st Floor, 29-33 Bucks Road, Douglas, Isle of Ma, IM1 3DE Itrust Max 16