There are a number of reasons why business owners choose to consider offshore private wealth management. The reality is that there are many situations in which a company’s growth can be restricted greatly due to the tax restrictions applied to the company as well as the general regulations that the company may fall under. This is particularly true for hybrid companies, which can be difficult to navigate. Working with an offshore asset management company can allow a hybrid business owner to more easily navigate protecting and growing their assets while still honoring their legal obligations.
In order to decide whether or not this option is right for them, however, a business owner must first assess their hybrid company and understand how wealth management services can best work for them.
What Is a Hybrid Company?
Hybrid companies are corporate entities that have grown more popular in recent years. They blend different aspects of nonprofit and for-profit corporations and can be connected to the corporate responsibility movement. Due to the fact that the concept is relatively new, these companies can be subject to different rules and regulations depending on where they are located.
Some states, for example, have passed laws that allow corporations to be formed that can earn and distribute profits to shareholders while at the same time attending to the social and public benefits of the business in question. But when these corporations are designated as hybrid companies, they are still for-profit companies in the eyes of the IRS. Therefore, their income is taxed as it would be for any for-profit business. Considering the fact that the IRS collected $3.4 trillion in taxes in 2017 alone, this is something that hybrid company owners must stay aware of.
There are several different types of hybrid companies in existence. They have many differences, but they will all be taxed as for-profit companies by the IRS. Additionally, donations made to these companies cannot be claimed as charitable contributions.
What Are Benefit Corporations?
Benefit corporations, otherwise known as B-Corps, are required to adhere to specific accountability and transparency standards. They are meant to have positive impacts on both society and the environment at large. The push towards these types of corporations is actually being led by a nonprofit known as B-Labs, which is attempting to advocate for and establish regulations for B-Corps.
The argument for B-Corps is that, though they are not nonprofit organizations, they can produce products ethically and in an equitable manner. Additionally, they place a strong value on environmental responsibility.
What Are Flexible Purpose Corporations?
Flexible Purpose Corporations are often referred to as FPCs. These corporations are similar to B-Corps, but are actually more specific in nature. They must have specialized charitable purposes. Additionally, these hybrid companies are monitored internally, rather than adhering to a set of standards set by an outside party.
What Are Low Profit Limited Liability Companies?
These companies, often known as L3Cs, are some of the more common types of hybrid companies and are more widely recognized than those featured above. They are meant to more efficiently attract capital investments from investors that seek a return on their money. This is not often associated with charitable companies, but L3Cs can also attract program-related investments from foundations. These investments, known as PRIs, are loans, not grants. As long as the purpose of PRIs is approved by the IRS, they can be counted as charitable contributions by the foundations.
Usually, L3Cs are able to make the approval process simpler through their governing documents. But there has not yet been a blanket approval made by the IRS for PRIs given to L3Cs. Therefore, the tax issues associated with these companies can still be somewhat complex.
It can be quite difficult for hybrid companies to function entirely within the United States. Therefore, it should come as no surprise that offshore wealth management can be beneficial to these companies. Owners of hybrid companies should research carefully before committing to this strategy, and consult with providers of offshore wealth management services to determine whether or not this is the right step for them.