The hybrid company is a recent structure. It is a combination of a company limited by guarantee and a company limited by shares.
Consequently, a hybrid company has at least two types of members: shareholders and guarantee members/beneficiaries.
The shareholders hold all the shares and as such are the legal owners of the company. They have full decision-making powers and hold general meetings. However, unlike in a traditional limited company, they generally do not receive dividends. They cannot derive any financial benefit from the company.
Beneficiary members are nominated by the board, which is the company’s executive body. They do not have the right to vote at the general meeting (other than having certain prerogatives relating to the liquidation of the company) but the financial benefits of the company flow to them alone. The two classes of member are distinct – a single member cannot belong to both.
To become a member, each person must undertake to contribute personally to the company’s debts should it be liquidated, up to a set maximum amount (often USD 100). The company’s shareholders have an obligation to pay up the share capital, while the beneficiary members have only a contingent liability.
So, through a hybrid structure it is possible to separate the legal ownership and the financial ownership of the company. Shareholders control the company, but all the profits flow to the beneficiary members. This is similar to the situation created by a trust, except that beneficiary members offer a certain level of guarantee in the event that the company is liquidated.
As a general rule, the shareholders of the company are professionals. They act almost like trustees and are remunerated in the same way. Decisions regarding the distribution of income and capital to beneficiaries are in principle made on a discretionary basis by the board alone (or in conjunction with a protector).
The rights and obligations of each class of beneficiary are generally set out in the by-laws of the company. In practice, the company can be organised in numerous different ways. The structure is highly flexible. For example, privileged shareholders can be added. They have restricted voting rights but a fixed and firm right to a dividend, with the surplus passing to the beneficiary members. A protector can also be named for the company.
As yet, relatively few professionals are familiar with hybrid companies. Nevertheless, they offer excellent opportunities in terms of both tax and inheritance planning. They combine the flexibility of a discretionary trust with the advantages of a traditional company. Hybrid companies will undoubtedly develop in the future. However, they are fairly complicated to set up and expert advice, particularly as regards tax, is essential.
CROCE & Associés Trust has considerable experience with hybrid companies. We are perfectly placed to form the optimal company for your needs. In particular, we have privileged contacts with relevant tax authorities through which we can obtain favourable fiscal rulings.
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