Foreword
The reader should be aware of the different types of company which are available to them. Regardless of your jurisdiction of choice, the companies that you are about to read about are readily available structures that company directors deal with on a daily basis.

Companies Limited by Guarantee
Not all offshore centres offer this type of company although the number of those which do is increasing as some of the possible benefits become more widely appreciated and recognised. At the time of writing they are currently possible in most of the Caribbean centres, Alderney and the Isle of Man.

Guarantee companies are companies which do not have a share capital. Instead, persons are elected into membership and once elected they are expected to pay an entry subscription and may be asked for further subscriptions in the future. Members will also be required to contribute to the capital should the company go into liquidation while insolvent. A member's liability will be limited to the extent of his guarantee. Usually, a nominal amount is sued such as ?10.

Unless provisions are included in the articles to the contrary, each member will have equal voting rights and equal rights to income or capital distributions should any be made. However, a guarantee company would often be structured so that the rights to distributions would be held by one class of members while the voting rights would be held by a second class of members.

Hybrid Companies
Those centres which allow guarantee companies will also permit this type of company which is essentially one which is limited by both shares and by guarantee.

There are two main types of hybrid companies. Firstly, there is the type where the members contribute to the capital of the company and acquire rights pro rata to their contribution. They are then issued with shares but are also required to contribute to the capital should the company subsequently go into liquidation while insolvent. The level of contribution will usually be limited to the amount which is stipulated in the articles.

The second type is very similar to the first in that there will be members as described previously but there will also be members who are elected who would not usually be required to contribute to the capital on election. However, such persons might still be required to contribute should the company go into liquidation while insolvent.

Hybrid companies (and indeed pure guarantee companies) have in recent years been used as tax planning devices and some practitioners have also used them as a type of corporate trust.

Possible tax benefits of a guarantee/hybrid company
Generally speaking, much of the tax legislation which is in place onshore looks to assess the interests of members who have shares in a particular company (on the basis that they are the ones who have a direct interest in the profits and income of that company). However, if the members (or perhaps a specific class of members) do not own shares but are instead only members by guarantee, there is an argument to suggest that they should not be assessed to tax on profits which are realised by the company.

Possible use of a guarantee/hybrid company as a 'trust'
What is required is a little creative drafting of the articles of association and from this it is possible to create a corporate vehicle which takes on many of the characteristics of a company law trust.

The articles could be worded so that the management and control of the company lies with the directors and also those members who have the shares. However, neither the directors nor the shareholders would be able to receive any distributions from the company. The articles would also create guarantee members who would be eligible to receive dividends and loan payments. However, they would only have restricted voting rights.

Under this arrangement, the directors and the shareholders would have a role which would be similar in nature to that of the trustees of a common law trust, whilst the guarantee members would receive an interest which would be similar to that of a discretionary beneficiary under a discretionary trust.

If required, the articles could also include provisions for the appointment of a person who would oversee the actions of the shareholders and directors and by doing so, would be similar to a protector who is sometimes appointed to act in the interests of the settler and beneficiaries of an offshore discretionary trust.

Limited Duration Companies (LDC's)
These are companies which have a limited life and at the end of the defined period (usually 30 years) the company will be would up. In some centres they are known as limited liability companies or limited life companies. Limited duration companies are currently available in centres such as the Bahamas, the Cayman Islands and the Isle of Man.

The members of LDC's would usually be involved in the management of the company and any income which the company receives, or any realised gains which it makes, will be considered to be the income or gains of the members and not that of the company.

In view of the way in which they are structured, limited duration companies are considered to be transparent for tax purposes and as such as very similar in nature to a partnership. They present a number of possible tax planning opportunities, most notably for clients in the USA where they are a popular offshore product. Their popularity stems from the fact that it can be advantageous for profits or income to be assessed directly on the individuals behind a structure rather than on a corporate body, on the basis that additional relief's and exemptions might be available to the individuals which would otherwise be lost.

Some LDC's will have directors and members (although usually members will have greater powers than the directors) and in a few cases the transfers of shares will be an event which triggers the termination of an LDC.

Protected Cell Companies (PCC's)
Guernsey was one of the first offshore centres which introduced protected cell companies (PCC's). They provide the usual characteristics found in other companies (e.g. separate legal entity etc.) but their capital is divided into separate parts, known as cells, which are designed to segregate and protect the assets which are held in these different cells.

PCC's can be used to reduce risk as, in theory, creditors who attach the assets of one cell will not be able to claim against the assets of the company held in other cells. They would, however, have a claim against assets which have not been placed in a separate cell.