Company Limited by Guarantee (Hybrid Companies)

Companies limited by Guarantee, like normal companies, have their own legal identity but they have members who instead of holding an asset (such as shares) hold an obligation to provide funds to the company in the future if requested. This obligation extinguishes on death so the ownership of the company may not form part of the shareholders estate on death, making them useful as an alternative to trusts as an inheritance tool. Sometimes these companies are structured with both shares and guarantee members (sometimes referred to as ‘Hybrid Companies’) with the intention of sidestepping Controlled Foreign Corporation (CFC) rules in countries which seek to tax foreign companies based on their ownership.

Limited Liability
Guarantee companies, like other types of company, have the ability to ring-fence liability and thereby protect the assets of their owners and managers from the liability of their own activity. This characteristic is referred to as “limited liability” and can also be used to, for example, separate the assets between a high business risk activity and a lower risk area. This is the main distinction between an incorporated entity such as a company and a sole trader.

Separate Legal Personality
Guarantee companies have their own identity, they can own property in their own name, open bank accounts, conduct business, sue and be sued and provided they are operated legally the liability of the company will remain limited to its own assets so any assets held by the owners and managers will not be forfeit in the event of the company being sued.

Avoiding Controlled Foreign Corporation (CFC) Rules
Most countries attempt to some degree to tax and regulate foreign companies which they feel are being used to avoid tax due to them or which they feel falls within their remit due to being operated within their borders. The principle basis for these rules is the location of the management; specifically where the directors spend the majority of their time. Therefore a company incorporated in country A may also be taxable in country B if the directors spend most of their time there. Where companies are taxable in more than one country there may be dual taxation arrangements in place however if one of the countries is a low or no tax area this is likely to defeat the tax planning reasons for which the company was established. Various methods have been used to attempt to avoid this situation with different degrees of success. The method of simply holding board meetings in the country of incorporation is, for example, likely to be ineffective in almost all cases. The method of appointing local directors may, if the company is operated properly, be effective in avoiding CFC rules based on management alone. More sophisticated anti-avoidance rules may seek to attack a foreign company claiming it lacks substance and is wholly or mainly artificial and therefore should be ignored for tax purposes. For information on building substance please see our main article on business incubation. More sophisticated systems may also base taxation of foreign companies not simply on management but also on their ownership and voting rights on the basis that the shareholders having the right to appoint and remove the board of directors are effectively in control of the company. Since membership of a guarantee company is not an asset (by contrast with a shareholding it is in fact an obligation) and does not normally confer any voting rights it can be argued that the members have no interest in the appointment of the board of directors. The effectiveness of such planning will depend on the specific anti-avoidance and disclosure rules of the country of the owner’s residence and may succeed in some cases legally but in other cases run the risk of operating merely on the basis of non-disclosure or by having confused ownership sufficiently to avoid detection, at least for a while.

Hybrid Companies
Since companies used for tax planning specifically to avoid CFC rules based on ownership generally have both shares (as a normal limited company) as well as membership subscriptions they are sometimes termed as hybrid companies. In such cases the asset shares (which confer the right to appoint the board of directors) may be held either by family members for whom ownership-based CFC rules are not applicable or by a service provider under a fiduciary obligation. The success of this sort of planning will depend on the way the company is structured and operated as well as the specific drafting of the anti-avoidance procedures and more generally the aggressiveness of the tax authority in question.

Estate/Succession Planning
Since the membership in a Guarantee or Hybrid Company is a personal liability it is extinguished on death and does not form part of the deceased’s estate. This may be relevant to avoiding death duties or inheritance taxes.

Use in Place of Trusts for Civil Law Countries
Though not as sophisticated as the Private Foundation, Hybrid Companies have the benefit of not being limited to passive holding; they can be used for general trading purposes as well. Where the asset class of shares is held by a fiduciary service provider or otherwise under a fiduciary obligation the relationship is analogous to a trust but may be more acceptable in countries which either do not recognise or may fail property to implement trust law. Another advantage of a Guarantee Company over a trust is that its purpose and reputation is more likely to be commercial in nature and the obligation of the director to its shareholders is considerably lower than that of a trustee to their beneficiaries making normal commercial operations much more desirable.

Ownership and Management
A Guarantee Company is owned by its shareholders but may, at their discretion, benefit its guarantee members. It is managed by its directors who are appointed by its shareholders (not by its guarantee members). The relationship can be compared with that of a trust with the asset shareholders and directors playing the role of trustee and the guarantee members that of beneficiary. The fundamental difference however is that the fiduciary obligation of a trustee generally requires the obtaining of a licence and is enforceable by application to court whereas the relative standing between guarantee members and the director and more generally the enforceability of the entire arrangement remains unclear.


Administrative Differences Between Countries
Guarantee Companies can only be registered in countries which have a suitably flexible legal framework. Where they can be registered they do not differ significantly from one country to the next except in respect of the rate of tax and also in respect of administrative and technical matters such as the number of shareholders required, how much information is available to the public, the format of the constituting documents, the timescale to formation, the amount of capital required to be deposited etc. These matters are addressed in detail on the company pages for each country where we operate.

Factor Concerning Choice of Country
Although conceptually identical from one country to the next in matters of substance there are considerable differences with regard to the level of regulation required to operate from one country to another as well as associated differences in reputation. For example companies from some countries are treated with suspicion and may attract unwanted attention from tax authorities or even social stigma. For this reason many clients prefer to pay some tax rather than opt for a 0% regime and the decision of which country is appropriate may be based on a mixture of tax rate, regulatory infrastructure and international reputation as well as the variance in cost. For most clients the reduced tax rate will be the primary motivator in using foreign financial services. Tax planning falls broadly into two groups: firstly those based on the non-disclosure and concealing of the existence and operation of the company; and, secondly, planning based upon attempts to legally provide structuring solutions which are, in theory at least, fully disclosable. The extent to which clients will be successful in the reduction of tax will depend on a number of factors including the ongoing operation of the company, the level of substance the company has as well as the attitude and sophistication of the tax authorities in the client’s home country amongst many others. However, it is important to note that short of the establishment of an autonomously operating company with a genuine presence in its country of incorporation no solution will afford perfect protection from tax issues. Although the above factors will always be to some extent a matter of opinion we endeavour to provide an objective review of the various pros and cons of the countries listed on our site by first differentiating between companies used for trading and for holding.



Foundations, like companies, have their own legal personality but have beneficiaries instead of shareholders so they can be seen as some way between a trust and a company, they may be established for a purpose or for the benefit of a defined group of individuals. Whilst they cannot generally be used for commercial trading purposes they may be suitable in place of a holding company and they may enjoy a more favourable treatment in Civil Law countries where trusts are not recognised, not fully understood or strongly associated with tax avoidance. Also they may afford a greater degree of privacy and anonymity than a holding company if correctly structured. Finally they are also useful for benefiting charitable purposes and for estate planning.

Private Companies

Limited Companies (termed “Corporations” in the US) have a more straightforward relationship between the shareholders and the director and may be considered safer since the law regarding their operation is well tested. However this level of certainty may mean that without substance in the country where they are registered they may fall foul of anti-avoidance Controlled Foreign Corporation (CFC) rules based upon ownership.


trust is a legal arrangement whereby one person (the trustee) holds assets for the benefit of others (the beneficiaries). Trusts (unlike companies) have no legal identity of their own and the assets are the absolute property of the trustee subject only to the terms of the trust instrument. In legal theory assets under trust are held separately from the trustees other assets but this can be problematic if the trust is operating in a country which does not correctly apply trust law. They come out of Common Law countries and are not fully compatible with Civil Law systems. Trusts can be used for trading but are generally restricted to holding given the extremely high and legally enforceable fiduciary responsibility of the trustee to the beneficiary (much higher than the obligation of a director to shareholders), the lack of legal identity and the legal complication when dealing with Civil Law countries. Properly operated trusts should generally preclude the person establishing the trust (the settlor) from having an ongoing involvement in their operation which may render them unattractive to some clients. Since the 1970s and 1980s trusts are strongly associated with tax avoidance and have been the target of a barrage of legal cases and anti-avoidance legislation meaning that they are now less relevant than the more progressive private foundation for straightforward holding but may have other uses in respect of asset protection and estate planning.