A closely held Company Structure:
The Establishment in Liechtenstein Law

(Published autumn/winter 1996)

The Establishment is a legal entity sui generis to Liechtenstein. It is an endowment possessing a legal personality and enjoying limited liability. Creditors of the company may only look to the corporate assets. Further advantages of the Establishment are its many practical applications as well as the possibility to maintain absolute anonymity with respect to the founder and the beneficiaries. The incorporation of an Offshore-Establishment in Liechtenstein does not require any official permission.

The Establishment has neither members, associates or shareholders. The stated capital may or may not be divided into parts. The Establishment may have beneficiaries being those persons or person entitled to all of the economic benefits of the Establishment.

Pure purpose Establishments have no beneficiaries and pursue a purpose defined in the objects.

Objects

The objects of the Establishment which must be stipulated in the articles of incorporation may be commercial or non-commercial. The Establishment may pursue any kind of activity provided that such activities are neither immoral nor illegal.

With respect to the pursuit of certain types of business (i.e. banking, insurance), the Establishment may require government permission.

Stated Capital

Establishments the stated capital whereof is not divided into parts or shares must have a minimum capital of CHF 30.000,- which must be fully paid-in. If the stated capital is divided into parts, the minimum paid-in stated capital must be CHF 50.000,-. For this purpose, negotiable currencies of any kind are acceptable as capital. Property in kind may also be brought in, in lieu of liquid assets.

In practice most Establishments have an undivided stated capital.

Formation of an Establishment

An Establishment may be formed by either a natural or a legal person who may be of any nationality. Only one founder is required. The incorporation of a domiciliary or a holding Establishment requires no official approval.

One may form an Establishment for oneself or for another party pursuant to a power of attorney or fiduciary agreement. It has become common place in Liechtenstein for a Liechtenstein attorney or trust company to act as founder of an Establishment thus protecting the anonymity of the actual owner.

The formation requires the submission of written articles signed by the founder and notarized or otherwise authenticated. The articles must contain at least the following:

• Name and Domicile of the Establishment
• Objects of the Establishment
• Stated Capital
• Powers of the Supreme Executive
• Administrative structure including the powers of each body
• Guidelines concerning the Preparation of Financial Statements and the Application of
• Surplusses
• Form of Legal Notice

Registration Requirements

The Establishment acquires legal personality upon entry in the Public Registry which requires the submission of the articles, the constitutive declaration, proof that the required capital has been paid-in and evidence that official registration fees have been paid. The following information is entered in the Registry:

• Name and Domicile of the Establishment
• Date of the Articles
• Objects
• Stated Capital
• Board of Directors and the Respective Signing Authorities
• Registered Agent
• Form of Legal Notice

The registration is not published. The office of the Public Registry, will, upon application, issue abstracts concerning individual companies which will only consist of the above-mentioned information entered in the registry. Thus the Establishment is an excellent corporate vehicle for the purpose of maintaining investor anonymity.

The executive bodies of the Establishment are normally the founder, the board of directors and the auditors.

Founder

The supreme executive body of the Establishment is the founder or his or her legal successors. The founder?s rights are stated in the Establishment?s articles. To the extent that the articles are mute, the founder?s rights are set forth in the legal norms contained in articles 534-551 of the Liechtenstein Persons and Companies Law and include:

• designation of his legal successors
• the appointment, the dismissal and the exoneration of the members of the board of directors
• the determination of the signatory authority of the board of directors
• the right to supplement and to amend the articles
• the right to issue by-laws and regulations for the Establishment
• the right to approve the annual financial statements and to distribute profits
• the right to appoint beneficiaries
• the right to cause the company to be merged, liquidated or reorganized.

The executive rights of the founder may be compared to those of the general meeting of the shareholders of the corporation. The founder?s rights may be transferred in part or in total to one or more transferees. Such rights also pass by way of inheritance and by virtue of the law. Founders? rights may be structured by way of contract to resemble shareholders rights in a closely held company.

Board of Directors

The board of directors is normally appointed for a term of three years, but may be appointed for a lesser or longer term. Unless otherwise stipulated in the articles of incorporation, the board is appointed by the founder and may consist of one or more natural or legal persons. At least one director, authorized to represent and conduct business for the Establishment, must be domiciled in the country and authorized to practise as a lawyer, trustee or accountant, or have other qualifications recognized by the government. There are no other requirements as to the nationality or residence of the remaining board members.

Within the competence of the board of directors are all matters which are not specifically reserved to the founder. The articles of incorporation may grant the board rights which, in the absence of such provisions would, according to the law be the rights of the founder. The board may delegate some or all of its powers to agents or managers.

Bookkeeping

If the objects permit the Establishment to trade, it must keep proper books and records as well as submit annual financial statements to the Liechtenstein Fiscal Administration. If the objects limit its activities to the holding and management of its assets, the Establishment is only required to submit a declaration confirming that a record of company assets exists and that the company has not traded in the past year.

The Auditor

The law requires the appointment of auditors if the objects permit the Establishment to carry on business. If this is not the case, such appointment may be dispensed with.

The EC company law requirements, e.g. disclosure, capitalization and accounting methods, consolidation of group accounts, audit standards and mergers, do not apply to the Establishment, because this corporate form is peculiar to Liechtenstein. It will continue to be possible to organize an Establishment along the lines of a limited liability partnership or joint-stock company. Moreover it may pursue the same commercial and industrial objects as a joint-stock company or limited liability partnership. With the exception of the fiscal administration in Liechtenstein, no person or authority has any access whatsoever to the financial statements of the Establishment. The fiscal authority is bound to maintain absolute confidentiality towards all third parties including foreign authorities concerning all matters contained in such statements.

Beneficiaries

Beneficiaries are those natural or legal persons designated as entitled to the profits and/or liquidation proceeds of the Establishment.

The right to appoint beneficiaries is usually stipulated in the articles and may be reserved to the founder or granted to the board of directors or to third persons such as a protector. If no beneficiaries are appointed, the founder or his successors are presumed to be the beneficiaries. Beneficial entitlements are normally set forth in a separate By-law which is not accessible to any third party.

The beneficial entitlements may be structured in order to achieve estate planning and asset protection goals. The By-law concerning beneficial entitlement may be drafted in much the same way as a discretionary trust. Beneficial interests may be revocable or irrevocable, subject to divesting or conditions precedent. They may be limited in time and are in no way subject to any rules concerning perpetuities or accumulations.

Activities of the Establishment

Common purposes to which the Establishment is put, are as a holding company, in particular for the purpose of controlling foreign companies or groups of companies. Such a company may also provide coordination or management services for related or controlled companies.

Establishments may be used to acquire and manage property including intellectual property or to conduct trading operations for its own account or on behalf of others.

The Establishment is particularly interesting for the purpose of holding investments which earn income and gains which are not subject to withholding taxes such as Euromarket securities or bank deposits.

Establishments may be used for a number of non-fiscal reasons, such as avoiding exchange controls, evading future, contingent and currently unascertainable creditors (asset protection) limiting the effects of professional liability, anticipating government confiscatory measures and similar asset conservation measures as well as transfer pricing, the circumvention of a government boycott, product liability, or the like.

The Establishment may pursue activities such as those of an agent, distributorships, buying and selling of securities for its own account, provision of services, sales, provision of know-how, brokering etc.

Mainly because it is sui generis to Liechtenstein, the Establishment can be optimally structured to maintain investor anonymity in a tax and regulation free environment.

The Establishment - A Liechtenstein Peculiarity

The draftsmen of the Liechtenstein Persons and Companies Law wanted to respond to the special needs of the Liechtenstein economy on the one hand and to create a framework which would encourage investment on the other hand. Thus they were inspired by the greatest possible liberalism and incorporated a broad choice of possible company forms into the Law. As stated in their report to parliament, all forms of enterprises as currently known to the Law in other countries have been included in the new code. However, the Establishment as known to Liechtenstein Law has no analogous form in any other country and is noted for its extreme flexibility and the possibilities which it offers to maintain investor anonymity.

The Establishment is subject to Minimum Taxation

Provided that the establishment does not carry on any business in the country - whereby the maintenance of an office with employees in Liechtenstein does not per se constitute a business activity - for tax purposes, it is subject to minimal taxation. In such a case it would be considered an offshore company for tax purposes and thus exempt from all income, capital and revenue taxes. The only tax imposed is an annual tax on the net equity of the company at the rate of 1 ?. The minimum tax is however CHF. 1.000,-. Provided that the stated capital isn?t divided into shares, distributions are not subject to any tax at source.

The same rules would apply to an establishment which is purely a holding company. For taxation purposes a holding company is a company whose business purposes are exclusively portfolio management including the holding or management of shares and participations in other companies.



F.L. BULLETIN

The trust which foreign investors have in the advantages offered by Liechtenstein is based on the healthy and stable national economy which is reflected in the budget. Liechtenstein has no national debts and revenues always exceed public expenditures. With respect to the 1997 budget the revenues are estimated to be CHF 601 million and the expenditures CHF 522 million. Thus the surplus is CHF 79 million which may be used for investing in fixed assets and in order to counter balance depreciations.   

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Publisher and Copyright Owner:
ArComm Trust Company Establishment

Responsible for Contents:
Law Office of Dr. iur. et lic. oec. Norbert Seeger

Editing and Arrangement:
Dr. iur. et lic. oec. Norbert Seeger

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The material contained in this publication is not intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering appropriate professional advice. The publisher, the author and editor expressly disclaim all and any liability to any person in respect of anything and of the consequences of anything done or omitted to be done by any such person in reliance upon the contents of this publication.