Offshore Company Formations: Must Close If Not In Use
Offshore company formations: Liquidate if not in use, exposed to liability, frozen accounts, damaged reputation
Offshore company formations: Perils of not closing your offshore company
Offshore companies wherever they are registered need to be renewed every year. All offshore companies have a date of incorporation. The required date of renewal is a year later on or before the date of incorporation.
A company must either be renewed or closed. Owners and directors of offshore companies that have continued to operate past the renewal date without being renewed face a serious risk.
Most often the reason for not renewing is that the company has served its purpose and is not needed any longer. There may be a temptation to let it ‘lapse’ on its own.
However this is not a wise choice. There are potential dangers for a company that has not been liquidated past its validity.
Offshore company formations: 5 dangers of not liquidating your company
1. Offshore Company loses its good standing
A company that has gone past its date of renewal automatically falls into ‘bad standing’. This means that the company has lost its legal validity as a company to enter into business transactions. Operating such a company can be illegal.
2. Company not closed can expose you to personal liability
An offshore company is often set up as a vehicle for avoiding personal exposure to liabilities. Continued operation of the company can render its transaction as null and void.
Or worse liabilities can be attributed to the owners and directors.
This will defeat the very purpose of the company.
3. Bank Accounts of a bad standing company can be frozen
If an offshore company is not closed and kept in bad standing it can cause its bank account to be frozen until the company is renewed.
This means normal banking transactions can be denied to it until the company is either
closed or renewed. The owners who operate a bank account of a lapsed company face a risk .
4. Renewing or closing a company that has been in bad standing for a long time can be tedious and costly
In some cases an offshore company may need to be renewed after a long lapse. This may be because:
a. Some transaction is needed or bank account needs to be operated
b. Or there may be a requirement to bring the company in good standing before closing it
This can be costly and time consuming because penalties will be levied for letting the company fall into bad standing and extra paperwork may be demanded.
So it is better to close it immediately rather than let it languish in bad standing.
5. Shareholders & Directors can cause harm to their personal record by not closing a company
An offshore company not liquidated using proper procedures is assumed to be in operation. As mentioned earlier, operating such a company is considered illegal.
The shareholders and directors of such a company can in future be marked for owning or serving on a company in bad standing when they approach for a new company in the same jurisdiction.
Considering the seriousness of these implications it is advisable to go through the full procedure of closing your offshore company if you have no intentions of using it.
You need to close your bank accounts to close your offshore company. Make sure that you receive an account closing statement from your bank.
Having done so, you can notify your agent who registered the offshore company for you to start the liquidation procedure.
The paperwork is not difficult and is taken care of by the registering agent.
It normally takes about a month’s time to get your company closing certificate. It is advisable to ask for a letter or a certificate that shows that the company is closed.
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