What is a Private Investment Company?
A Private Investment Company (PIC), also known as an Offshore Company, is a corporation established to hold investment assets. A PIC is typically incorporated in a tax-neutral offshore jurisdiction such as the British Virgin Islands (BVI) and Cayman Islands. A PIC typically has fewer than 100 investors, has no intention of making an initial public offering (IPO) and members have significant funds invested elsewhere. PICs are generally meant for wealthy individual investors.
Shareholders of a PIC own a specific percentage of the assets held in the PIC and can appoint and dismiss directors, while directors have management oversight of the PIC, can enter into contracts, and may delegate the operation of bank accounts to others (known as Authorized Signatories).
The beneficial ownership, management and signatories of the PIC can be structured in flexible ways, or can simply be retained by the client; yet, it is a separate legal entity that offers privacy and wealth protection benefits.
What can I transfer to a Private Investment Company?
PICs can hold a wide range of assets, including cash, securities, life insurance policies, real estate and, in some cases, fine art. These assets can be located almost anywhere in the world.
How does a Private Investment Company work?
The client may determine who to appoint as directors, shareholders, and authorized signatories (if required) of the PIC, where shareholders retain the ultimate rights of ownership of the PIC and its assets. The client may give investment instructions, or choose to appoint an investment manager to act on his/ her behalf. The client can also add or withdraw assets at any time.
In certain jurisdictions such as the BVI, there is no requirement to file annual returns or financial statements, hold annual meetings of directors or shareholders, or conduct audits.
Typical jurisdictions of Private Investment Companies
Popular jurisdictions for PICs include the BVI, Cayman Islands, Cook Islands, Hong Kong, Labuan, Mauritius, Samoa, and Seychelles.
Why use a Private Investment Company?
PICs can protect financial privacy, limit liabilities, and structure tax efficiently. They are most commonly used for asset preservation.
Limitation of liability
As the PIC is a separate legal entity from its directors and shareholders, the clients’ personal assets can be protected from legal liabilities.
Basic inheritance planning
Shares in a PIC can be owned jointly with right of survivorship, where the ownership will automatically be transferred at the death of one owner to the surviving owner(s). However, if the PIC is owned by one person, assets in the PIC will be subject to probate with the death of the sole owner. For optimal and complete inheritance planning, it is recommended that a PIC be set up within a trust structure to ensure that assets are passed on according to the client’s specific conditions.
Assets are held in the PIC’s name, which ensures confidentiality for the shareholders and any of the beneficial owners. Correspondence regarding investment transactions that the PIC enter are addressed to the PIC, thereby safeguarding security in the event that mails get intercepted. The only public documents are the Certificate of Incorporation and the Memorandum and Articles of Association, which shows the name and registered address of the PIC.
PICs are generally not subject to taxes in the jurisdictions where they are incorporated. Assets held in a PIC can be protected from a range of taxes including income tax, estate tax, inheritance tax, and capital gains tax.
Ease of asset transfer
Transfer of assets is facilitated by simply transferring shares in the PIC, effectively eliminating transfer taxes.
PICs can hold a wide variety of assets, allowing clients to consolidate global assets and simplify financial record keeping.