What you should Know when working with an offshore firm or attorney with regards to your incorporation

Like law firms everywhere, there are some good ones, and those you would like to forget.  Fees quoted by legal firms, in most cases, will be much higher than a quote you might obtain from a so-called "offshore firm".  The main reason for this is that law firms are not in the investment business, and are earning their income strictly from legal services.  This is a very important point, and one that also explains the "hidden agenda" some offshore firms have when quoting a fee that seems like a bargain.  On the other hand, it can be difficult to find a law firm in another country that understands your particular tax or business needs.  In addition, there can sometimes be a language barrier that must be overcome as well.  Getting a straight answer about tax issues or investments, seems to be the most common complaint we hear from clients that have attempted to contact a law firm that was located in a tax haven jurisdiction.  This is not to say that you will have the same experience.  But, it is a possibility.  

The option is of course to work with a local law firm in your home country that may offer these type of "offshore incorporation" services.  Often enough, communicating your needs or questions is not the problem, but the price certainly will be.  Since most firms are in fact sub-contracting legal service work with a local law firm in the tax haven jurisdiction, the client will almost certainly end up paying double.  The domestic firm will assuredly cover their own legal fee, plus tack on what they must pay to other law firm they are working with.  For this reason, a law firm located in Canada, the UK, or the US will almost always be your most expensive choice for an offshore structure.  
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Shelf Companies:  A shelf company is a pre-formed incorporated company, or simply one that has been in existence for a while.  Some firms keep an "inventory" of such pre-formed companies.  We of course, do not.  

Our dislike of this practice is based upon our belief in protecting our client, and the idea of providing a true professional service.  When you purchase a pre-formed company, or a company used by another client (that was subsequently “sold” back), it is sort of like buying a used car.  You do not really know if any problems existed with this company, or if in fact any material ownership changes were made at the public registry (please read our article about nominee directors to learn more).  Some firms will tell you that buying such a company saves time.  If you feel that five business days is too long to wait for a new and clean company or entity, then perhaps a shelf company is what you want.  A new company can be formed in most jurisdictions in five days or less.  The only reason for additional time would be the mail, and time required to send documents back and forth for your signature, etc.  
  
We highly suggest that you form a new entity that is yours.  The costs are the same, and in the case of an incorporation, the articles can be drafted to your own specifications.  
  
The other issue that bothers us about shelf companies, is the general idea that it is a "fast food” approach to what should be a personal and professional type of service.  You can now buy a computer from some firms like Dell, that will “customize” it to your specifications - and we are talking about just a computer.  Why would you not take the same approach to your money and your business affairs?  
  
Nominee Directors:  Our other article about nominees goes into this topic in more detail, but keep in mind that many firms will push the idea of using in-house nominees on your incorporation or other entity that you form.  We are very much in disagreement with this, and do not in any way control a client’s structure or business affairs.  There are a number of strategies that can be undertaken to provide privacy to a client, while making sure they legally are protected.    
  
The logic that some firms will use, is that of asset protection and anonyminimity.  

They will tell you that it is a matter of trust, and that of course you always have control. Perhaps.......and perhaps not.  Our concern is that most of these firms are privately held,  and are not regulated.  If your name is no where to be found on an entity or structure, you will have no legal recourse should you wish to pursue a grievance.  This idea of being “invisible” can work for you, but also very much against you legally should there be a problem with the firm you are working with.  To make an anology, it is sort like asking the fox to watch your chickens for you.........but who is watching the fox?  To take this a step further, we prefer to install a video surveillance system around the chicken coop for you ~ and give you the monitor.  This is a somewhat light-hearted way to explain things, but you get the idea. 
  
In-House Investments or Mutual Funds:  In addition to offering incorporation services, many firms also offer their own in-house investments or mutual funds.  Some firms offer investment products that have performed quite well, and do take their fiduciary responsibilites seriously.  The real problem is the fact that many of these mutual funds or investment products are not regulated.  While the Bahamas has enacted legislation to correct this, and similar legislation is currently pending in Panama, the fact remains that the potential for problems exist.  When you create a structure that does not have your name on it, and in turn place your money with that very same firm in one of their in-house investments, it is in our opinion, a recipe for disaster.  
  
Low or Teaser Fees:  Some clients have questioned the differences in our fees, to those they have seen “advertised” or have been quoted by some other firms.  As with every other type of product or service, there are fees or prices which are average, above average, and of course below what most other law firms or related services firms charge.  There are certain things which are constant for every law office or offshore firm, namely registration fees and filing fees required by the government where the entity is domiciled.  In addition, I know of no notary public or attorney that works for free.  We have heard about, and have seen advertisements, for some fees that barely seem to cover these very basic expenses.  Perhaps it is a case of old fashioned competition, or perhaps there is some other hidden agenda.  
  
Keep in mind that many “offshore firms” do offer in house investments or mutual funds.  Some drastically reduce incorporation or other service fees, with the hope of making up the difference through the management fees they will collect on the investment funds you deposit.  That brings us back to the comments made earlier about un-regulated mutual fund investments.  There is no such thing as a free lunch, just as there is no such thing as a guaranteed investment paying 50% interest (see our article about various investment scams we or our clients have heard about).  
  
The point is, investigate anything out of the ordinary thoroughly.  Usually there is some reason for it, or at least something you are not being told.  This includes fees or investment returns that seem too good to be true.  In many cases, they are.