BUSINESS STRATEGY

Part 5 of a 6-part series

[Part 1, Part 2, Part 3, Part 4]

In the previous article in this series, we discussed the general issues surrounding going offshore.BUSINESS STRATEGY

Part 5 of a 6-part series

[Part 1, Part 2, Part 3, Part 4]

In the previous article in this series, we discussed the general issues surrounding going offshore. In this article, we discuss the specifics of setting up an offshore company in relation to your adult business.

Flying Low On The Radar Screen – Part 2

The buzz for Greenland Girls.com was tremendous at the recent convention. Greenland keywords have shown a tenfold increase in popularity. You’re ready to make the big money, but you need to form an offshore business to protect your highly visible investor. How do you do it?

Two Corporations – A Twist On A Familiar Strategy

As mentioned in one of our previous articles, the use of two corporations can be a positive method for creating anonymity. The problem with creating two domestic corporations is that a properly motivated attorney could eventually root out the identity of your investor. Offshore corporations solve this problem.

You have formed a domestic corporation for Greenland Girls in your home state of California. It is time to form the second corporation, but you need as much protection as possible for your investor. Where do you incorporate your management corporation?

Let me introduce you to a little island where the women wear…sweaters and long coats. Just a few thousand miles north and east of the Caribbean, you will find islands such as Jersey, Guernsey and the Isle of Man surrounding England. They are not particularly warm, but they are excellent offshore facilities. The locals speak a funny version of English, but it is English. The laws favor confidentiality and eliminate taxes if you register your corporation with one of the islands, but do not actually conduct business there. From a legal perspective, we are relaxing on a sunny beach and the surf is up.

To form our corporation in the Isle of Man, we will need to do little more than we do in filing a corporation in any state. We want, however, to do more to protect ourselves. Specifically, we want to use someone known as a “nominee” to form our corporation. A nominee is a resident on the Island who will have NO power to alter the corporation or touch the business accounts. For a reasonable fee, however, this person will be listed on the incorporation documents in place of your investor.

Think about that for a moment. Your investor is not listed anywhere as having a connection to the corporation. There is simply no trace of the investor. To complete the process, the management agreement and loan documents are prepared as discussed in previous articles.

Taxes

First, stop hyperventilating. You are thinking of the possible “tax advantages” that could arise in such a structure. “Hmmm…if I just drain all the profit off and never report it…” Don’t be tempted by such thoughts.

As a citizen of the United States, you must pay taxes on your income regardless of where you have earned it. In short, you must pay taxes on the income coming into the management corporation. Ah, but who will catch you if you don’t report those taxes? Most people who try to “play funny” with their offshore taxes get into trouble because the following group of people report them to the appropriate federal agency: ex-wives/lovers, angry business partners, competitors and other individuals who have an ax to grind. Humorously, the tax-evaders often get themselves into trouble by trying to move the money into the United States for personal use. A bank in the United States must comply with a significant number of reporting laws regarding the movement of money in and out of the country. Many individuals are unaware of this and think they are being slick by using offshore accounts. Realistically, they are just determining whether they will be in a country club prison or something far worse.

Why Doesn’t Everyone Go Offshore?

Initially, it is very expensive. If you are making $80,000 on your adult business, the only venture you should be pursuing in the offshore world is a vacation. The fees related to your offshore corporation will run upwards of $25,000 including filing costs, the attorney fees and nominee costs. You will need at least $100,000 to establish a functional offshore bank account with a reputable bank. Yearly maintenance fees will run as much as $10,000. In short, to gain the advantages of money, you have to have money!

Banks

This is a subject unto itself, but it merits at least a quick note here. There are a variety of banks that cater to the offshore arena. In the movies, these are often portrayed as being in expensive buildings where everyone is smoking cigars, etc. To some extent, this is true. Many of the banks that advertise, however, are merely post office boxes or small offices. Use them at your own risk! If a bank has not been in business for a substantial time and does not have offices in multiple jurisdictions, you should take your money elsewhere.

I Saw It On The Net

I often hear, “I was searching the Internet and ran across a site that will incorporate me offshore for $595.00. Why should I go with you?” I can’t tell you how much I enjoy these questions. I immediately hand the person my card and get theirs. I then make sure to send them a note each month. Why? I know these people will be coming back to me in need of major legal help due to problems with their offshore efforts. They will end up spending a fortune in fees on tax attorneys, criminal attorneys and accountants.

If you try to go offshore in a cheap manner, you are going to get exactly what you deserve. As webmasters, you are acutely aware of the fact that anyone can create a site and claim expertise as a designer, marketer or web guru of some sort. Despite this fact, many of you will grant an “offshore incorporation” site the benefit of the doubt when it comes to credibility. Some of these sites just take your order and you never hear from them again. Many will try to put other charges on your card.

Now, not all of them are rip-offs. Yes, they might actually register you and they may even send you a nice leather corporate book for your company. That, however, is where the service stops. Who is going to advise you on the tax laws? Who is going to make sure you file the necessary documents with the government? At best, the service will tell you that you need to retain an attorney to handle those matters. Will I take you on as a client at that point? Probably. Most attorneys practicing in this field, however, will not work with the creations of other people. For instance, I will often review the documents and business entity that the client brings in and then close it all down to limit the damage done by my client. Now my client can either pay to have it done right or forget the entire process. Again, do not be a sucker or a cheap skate when doing business in this arena. You will pay dearly for taking such approaches.

This series of articles, obviously, should be taken with one serious grain of salt. Your situation is different from the next person’s and you must recognize that fact. Each of the scenarios that have been discussed in these articles may or may not be applicable to your particular situation. As such, you are taking a huge risk if you try to pursue them without legal and accounting advice. Remember, you get what you pay for.

Richard Chapo is the lead attorney for AdultInternetLaw.com, based in San Diego, California. AdultInternetLaw.com provides legal services to adult businesses, focusing on business strategy, corporate and contract preparation and site reviews. He can be contacted at adultlaw@yahoo.com. This article is for general education purposes and does not address every facet of the laws surrounding the subject. Nothing in this article creates an attorney-client relationship.

BUSINESS STRATEGY

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