Mind and Management

Mind and management is an essential requirement for the successful operation of these international structures. If proper mind and management is not put into place, then the structure can be successfully challenged by CCRA.

Mind and management will relate directly to the business plan. The company must have real substance in the offshore jurisdiction, but what that requires will vary upon what the company is undertaking and the amount of profit they intend to take into the IBC. The greater the proposed business activity and profits that are attached to the IBC, the greater the indicia of mind and management. While the Canadian company can have input via the Board and the business plan, the actual business operations must be managed out of the IBC.

Great care must be taken to ensure that advisors work with the management team in the offshore jurisdiction to put such a system in place. Mind and management concerns are at the top of the list when challenges are made to an international structure.

Several options exist for dealing with these concerns. While every company must put together its own individual management plan, here are some of the options:

Board meetings should be regularly held and properly planned. Advance agendas and materials should be circulated to all Board members. The agenda should be set, with input from Board members, by the Chairman or the Corporate Secretary.

The Board should have input on all major decisions to be taken by the IBC. This is particularly important relating to the formulation and implementation of the business plan of the IBC. As well, in most cases, all major contracts of the IBC should be subject to input and review by the Board.

Hiring Management Companies: For many Canadian companies, the most cost-effective option for mind and management (at least in the initial stages) is to hire a reputable business management firm in the chosen jurisdiction. The company should have the business and logistical abilities to carry out the business functions assigned to the IBC. These will, in addition to the back-office functions, include gaining a familiarity with the various business functions the IBC will undertake.

While the Canadian company will need to be aware, on an ongoing basis, of the activities of the offshore company, the foreign management team must be familiar with such things as the contracts that it is charged with administering. The reality is that the offshore management team must be able to credibly show that it has the knowledge and skills to conduct the business functions outlined in the business plan.

Hiring Employees: At some stage as the business expands, it may be necessary for the IBC to hire local employees. For example, most management companies can provide a variety of back-office services, but if something such as a customer service call centre is required then it is usually best to hire locals to do this work. They may well do this under the overall supervision of the management company. Again, the greater the role of the IBC in the international business process, the greater the need for a substantial local presence.

Moving Employees to the IBC: For many companies, this will become essential if the volume of business becomes large enough, or if the nature of the operations of the IBC requires such specialized knowledge that in-house personnel is a necessity. This is usually not necessary in the early phases, and in fact many companies have operated for years without having to move people to the IBC. Usually there is no problem in getting 1 or 2 work permits for management personnel, but beyond that, most jurisdictions strongly want local residents to be hired by the IBC.