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Even up to as recently as twenty years ago, there were few tax havens, and they were a mystery to most people. Additionally, there were only a few professionals specialising in offshore company formation, and those that did, typically made use of only one or two jurisdictions. Since then, startling advances in technology and the telecommunications revolution, have made it easier to access offshore facilities, so much so that today's offshore industry has developed into a major global business, involving, in one way or another, approximately half of the world's financial transactions by value passing through offshore bank accounts.
Limited Liability Companies
The concept of limited liability companies, which can be traced back to the early part of the 19th century, is central to offshoring. They were first developed when the demand for capital was great and entrepreneurs were looking to the public for investment. Many early enterprises were highly successful of course, leaving only happy investors, but some failed. Sometimes, when these businesses failed, the investors were not only left nursing the loss of their original investment, but frequently faced demands for all the company's losses. Not unreasonably, faced with such mounting losses and ensuing bankruptcies, demands were made for legislation to protect stockholders and other investors.
From this early legislation the limited liability company grew. These companies shared two important features. First, the director's and stockholder's liabilities became limited to the amount of the company's share capitalization, and, secondly, the companies were viewed as a separate legal entity, quite distinct from their owners. Thus, the legislation ensured that if a limited company failed, for whatever reason, stockholders only lost their original investment.
Over the years, the legal framework of limited liability companies has changed to keep pace with modern business practice, but the basic concept remains to this day. It is the fact that the company is a separate legal entity that makes it an ideal tax planning vehicle. Having an offshore company is akin to creating a whole new persona able to carry out your bidding.
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