New York Times Dealbook article on the benefits of incorporating abroad in an age of globalisation
This article from the NYT Dealbook is a useful overview of the advantages of incorporating outside the US for companies that in fact conduct the majority of their business in the US. The analysis focuses on the recently-floated Michael Kors Holdings, which derives 95% of its revenue in North America, but which is incorporated in the British Virgin Islands, thus sidestepping “higher taxes and substantial regulation in the United States”, with its corporate headquarters in Hong Kong.
The articles also highlights that:
- “Michael Kors will also be able to dodge much of the securities and corporate regulation applicable to American public companies, which are subject to scrutiny under the federal securities laws intended to protect investors.”
- “If a shareholder wants to sue a Michael Kors director for misconduct, good luck. The corporate laws of the British Virgin Islands are very different from those of United States. Michael Kors states in its I.P.O. prospectus that “minority shareholders will have limited or no recourse if they are dissatisfied with the conduct of our affairs.” A shareholder would most likely have to sue in the British Virgin Islands.”
A key motivation underlying these overseas incorporations is the US tax system, which taxes US-incorporated companies on their worldwide income instead of just the revenue it earned in the US – whereas companies organised outside the US will pay tax only on money earned in the United States.
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