TCI Hybrid Companies
A Hybrid company (as referred to on this website) is first and
foremost a company limited by guarantee. It differs from a
standard Guarantee company however, in that it also has a
share capital. TCI legislation makes specific provision for
companies "limited by guarantee" and for companies "limited by
guarantee and having a share capital".
Background
The concept of Guarantee companies having a
share capital is derived from the
development of company law in the UK and is
familiar to practitioners in that part of the world. Guarantee companies and
hybrids were originally intended to provide an alternative
means of limiting the liability of the members in
circumstances where a company had no capital requirements
(where a Guarantee company could be used) or limited capital
requirements (where a hybrid company could be used). As a term
of membership members guarantee to contribute a fixed amount
(e.g. US$100) to the assets of the company in the event that
it has debts when it is wound up.
Application
Because Hybrid companies also have a share
capital the voting control can be separated
from the prospect of receiving distributions and/or
participating in any liquidation. That is, the members of a
hybrid company that hold shares can be exclusively entitled
vote at general meetings, but can be precluded, under the
articles of association from receiving distributions from the
Board of Directors. The potential to receive distributions
from the Board can be restricted to the client members, who
would provide a Guarantee but do not take up
voting shares.
The Articles of Association of TCI Hybrid Companies are
drafted to separate management powers from the potential to
benefit from assets contributed or accumulated by the Hybrid. When
properly structured a Hybrid Company creates a relationship
between the management and the contributing member/client
which is similar in effect to that of a trustee and a settlor.
Notwithstanding that an individual is a
member of a TCI Hybrid Company, when properly structured
his/her position will be as follows:
-
Not a shareholder
-
Not a director or officer
-
No voting rights or fixed entitlements to assets contributed
-
No tangible control over dividends, loans or payments
Uses
Objectives which may be achieved by careful use of TCI
Hybrid Companies include the following:
-
Indefinite, legitimate deferral of capital gains tax in
certain circumstances;
-
Enhanced asset protection;
-
Confidentiality of membership (exempted TCI Hybrid Companies
benefit from the same high level of confidentiality as
standard IBC's and are almost as simple and cost-effective to
maintain);
-
Avoidance of probate and estate costs.
By virtue of the above Guarantee Companies can clearly be
useful as conduits for active investment enterprises and as
shareholders in other structures, e.g. by structuring them as
charitable foundations and utilizing them as shareholders of
trustees to private family trusts.
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