Extensive legislation in various high-tax  jurisdictions designed specifically to limit the flight of capital to offshore trusts has meant that Guarantee Companies have been increasingly used to achieve substantially the same objectives as offshore trusts.

The principal defining characteristic of a Guarantee Company is that the liability of the members is not limited to the amount unpaid on shares.  This is "because companies limited by guarantee do not have a share capital".   Prospective members are instead required to provide the Board of Directors with a guarantee that they will contribute a fixed (e.g. US$100.00) in the event that the "company" has debts when it is wound up. 

Reporting requirements which would otherwise arise by virtue of share ownership are therefore immediately avoided in many instances. 

Because Guarantee Companies have no shares to issue in exchange for capital, assets received from the members are typically reflected as contributions.    

Furthermore, the Articles of Association of  TCI Guarantee Companies can be drafted to effectively separate management powers from the potential to benefit from any assets contributed.   Typically a structure will provide that assets contributed are managed by the Guarantee Company's Board of Directors and that  the contributing/client membership is effectively the only class of membership which can "potentially" benefit at the discretion of the Board.

When properly structured a Guarantee Company creates a relationship between the management and the contributing member/client which is similar in effect to that of a trustee and a settlor (or settlor/beneficiary).   However, due to their corporate nature it should not be possible to classify Guarantee Companies as trusts or "default trusts" and the reporting requirements which certain jurisdictions impose on their citizens relative to the creation of offshore trusts and/or beneficial entitlements in offshore trusts can in many situations be legitimately avoided.

The management is elected to office by the voting membership (both of which are typically provided by the corporate service provider) - say, Class "A" membership.  The Class "A" membership have a nominal and fixed entitlement (typically a small annual dividend payment).  By fixing the entitlement of the voting membership at a nominal amount a situation is created where the management have in effect, no incentive to do anything that would be detrimental to the contributing/client member's interests.

The Guarantee Company's management have the discretion to decide when or if distributions, payments and/or loans to the contributing members should be made. 

When combined with restrictions on the transfer of membership and the admission of new members, asset protection objectives can also be achieved.

The standard objectives which can be achieved by careful use of TCI Guarantee Companies include the following:

• Tax deferral and wider discretion in relation to the realization of taxable events.
  
  

• Asset protection.
  
  

• Confidentiality (exempted TCI Guarantee Companies benefit from the same high level of confidentiality as standard IBC's and are almost as simple and cost-effective to maintain).
  
  

• Avoidance of probate and estate costs.

Notwithstanding that an individual is a member of a TCI Guarantee Company, when properly structured his/her position in relation to the company is as follows:

• Not a shareholder
  
  

• Not a director or officer
  
  

• No voting rights or fixed entitlements to assets contributed
  
  

• No tangible control over dividends, loans or payments

By virtue of the above Guarantee Companies can clearly be useful as conduits for active investment enterprises and as shareholders in other structures.

By working with a client and his tax advisor(s) to ensure compliance with on-shore legislation from the outset, client/investor members should not be subject to penalties on repatriation of assets.

The foregoing is introductory in nature and is not intended to stand as a comprehensive treatise on the topic.  If you are considering incorporating an offshore company for any purpose email us to outline your situation and objectives and we will be happy to assist in deciding whether a TCI Guarantee Company might be appropriate.