Throughout human history, the ownership relations were one of the most important in human society. It is human nature to be guided by the desire to possess, use and dispose own assets.
Human history abounds with the examples when the disproportionate distribution of assets in society has caused negative consequences for both ordinary citizens and countries as a whole. Restriction of rights of certain social groups regarding the possibility to accumulate own assets was also a cause many problems.
The development of the various state institutions, the purpose of which is to establish control and to protect assets, increases the overall safety of keeping personal assets, as they become unavailable to other citizens. At the same time, the owner faces new risks, such as assets seizure or embezzling by different entities endowed with broader powers.
Assets protection – present status
Despite the constant improvement of the operational procedures of the respective authorities and services, the human malice and ambiguity of the applicable laws pose a danger to the safety of assets. As a result, the problem of protecting assets remains relevant, and is treated by a new area of legal framework – "Assets protection".
Asset protection is an organizational and legal activity aimed at eliminating а possibility to encroach of assets by any natural or legal person.
At the same time, owners reserve the right to:
- Control assets;
- Receive profits from assets;
- Dispose assets, including selling, transferring, reassigning by succession, gifting, etc.
The possible encroachers of assets and personal belongings are:
- State bodies;
- Participants in transactions, including counterparties;
- Business partners;
- Insiders, possessing confidential information;
- Professional plaintiffs who make money in court processes;
- Family members (in the case property division, divorce, etc.).
The main task of asset protection is its structuring with the aim of eliminating the possibility to encroach on assets by various natural or legal persons.
Structuring of Assets protection
The process of structuring assets is in their transferring / redistribution over the different entities (natural and legal entities), which are exposed to less risk of losing control over them in comparison to the level of risks of the actual owner of these assets. The result of the structuring of assets is their protection from the owner’s risks.
There are three main groups of possible structures of assets protection in modern jurisprudence:
- Legal separation of the owner and his assets. This strategy involves transferring assets from an entity having a high risk of losing control of the assets, to the entities with minor risks.
- Ensuring confidentiality of assets ownership. This group of structures of assets protection involves the assets ownership under the condition of non-disclosure of personal information on their owner.
- Property encumbrance. This method involves organizing certain legal situations when the existing assets become no longer attractive for possible encroachers due to the loss of their economic value.
One of the most important stages in the development of the structure of assets protection is the right choice of jurisdiction from the point of view of the peculiarities of its legal institutions. Characteristics of the legal institutions used within the generated solution will influence the general success of the operation of the structure as a whole. That is why, the jurisdiction used in the structure of assets protection, must comply with the following criteria:
- Stability of the political system;
- Independence of the judicial system;
- Appropriate level of execution of decisions made by the judicial bodies;
- Favourable conditions of the applicable tax regime;
- Guaranteeing secrecy of confidential information and availability of a closed register of companies;
- High level of effectiveness of the applicable law.
Among the reliable methods of assets protection there are:
- Avoidance of cooperation with the unverified partners;
- Complete rejection to participate in any business as an entity with unlimited liability;
- Strict implementation of the regulations regarding business activities management;
- Liability insurance (the insurance premium is usually much lower than the amount of money, which can be lost in a case of winning a lawsuit by a plaintiff);
- Competent usage of corporate structures such as companies with limited liability.
Corporate structures for protection of assets
It must be noted that the use of corporate structures requires flawless compliance with all the existing formalities provided in the appropriate corporate legislation. The main requirements are:
- Availability of a corporate Bank account for a legal entity.
- Continuous and accurate maintenance of all the necessary internal documents including registers of members, shares, etc.
- Regular conveyance of general meetings of Shareholders and general meetings of Directors of the legal entity with the mandatory protocols and further safekeeping the records on these events.
- Avoidance of mixing the assets of the legal entity and the assets of its owners.
Registration of a legal entity / corporate structure (company or partnership) on the territory of the classic offshore jurisdiction, under the condition of fulfilling the abovementioned requirements, gives a possibility to benefit from the significant additional advantages:
- Doing business under the laws with strong assets protection framework.
- No taxes on income of the offshore entity (there is a necessity of the annual payment of a small fixed fee).
- No strict requirements on the reporting procedure of the legal entity.
- High level of protecting of confidential information provided by the laws of the offshore jurisdictions.
- Possibility to use the so-called private funds that serve as alternatives to trusts, but are considered as legal entities and, therefore, are subject to the mandatory state registration. That is why such funds are more accustomed and popular with the international clients. Private funds are managed by natural persons who are not their formal owners. The founder of the fund may transfer some portion of his assets to the fund. It will be used by the Board of trustees of the fund in the interests of its beneficiaries. Private funds can be also used for charity and other purposes.
Asset structuring is a guarantee of assets being protected from the possible encroaches on the right of their possession. Timely planning of the assets structure is recommended for achieving maximum effectiveness of applying various strategies of assets protection.