Offshore Company Formation – Advantages & Disadvantages

Forming a company offshore has been considered a smart business move among a lot of social circles. Just remember that starting your own business is a huge ordeal to begin with, so when you consider an option like this one, you need to make sure it is not only the right decision for you to make, but also, is it the smartest decision? Will it be wise to form an offshore company under the jurisdiction of say Belize, Panama, or Switzerland?

Unfortunately, the concept of offshore incorporation carries with it a negative mindset. So many individuals have been led to believe that this type of entity is formed to hide shady business deals or to dodge paying one’s taxes. Never has this been farther from the truth, when in reality, many legitimate businesses are using offshore location as a leveraging tool that would not be possible were it not for their location.

Why should I form a company offshore? There are three major reasons ahead of all the others and they are definite advantages where this concept is concerned.

Advantage #1 Legal protection

This should be the first reason for considering an offshore operation. Typical business operations tie the assets of the business to a name, usually the owner’s. This is not the case with an offshore entity. The benefit to this is that your assets are now immune to lawsuits and other legal judgments.

Advantage #2 Privacy

Most businesses do not enjoy the level of privacy that is provided by an offshore business. It’s difficult enough to try and determine a company’s assets, much less keep them anonymous. The offshore concept provides the anonymity that is oftentimes desired.

Advantage #3 Tax Benefits

The potential tax savings are huge, not to mention enticing, and depending on whose jurisdiction you form your business in, these savings could be of significant proportions. In a few cases, there is no tax at all. You will need to put in some time performing due diligence and research on this benefit, as the benefits vary widely from on jurisdiction to the next.

What are the disadvantages of forming a company offshore? Again, there are three major issues to consider when looking at setting up a company in an offshore setting, but then again, you can’t have the advantages without some disadvantages.

Disadvantage #1 Appraisals and Financing

The offshore concept provides you with privacy, but the major drawback to this benefit is that it also makes it difficult for the potential financial partners or investors to determine what your business is actually worth. In addition to this, lenders are more likely to be hesitant in approving or granting financial assistance to a business that is out of their “reach”.

Disadvantage #2 Limitations

Some offshore companies may be limited in their activities due to restrictions that are placed on them by the United States as well as other jurisdictions. Trade benefits that are designed to help US companies may not be available to you due to your offshore registration. Again, research this issue as it can be a drawback depending on your industry.

Disadvantage #3 Perception

As was mentioned above, the offshore concept is not always held in the highest regard due to the media only reporting bad cases so incorporate with care and privacy.