I have come across the question "how to set-up a hedge fund" on this forum multiple times, so it could be useful to share my own -hypothetical- best practice. I hope this helps.
Of course, if you spot a (potential) fault, don't hesitate to comment. I believe it could always be possible to further improve any structure.
- 'Investors': in Europe, but potentially globally.
- Type of business: for example an IBC in Belize. Undisclosed UBO and zero taxation, cheap. You set it up as a holding company. Not a hedge fund or financial institution or anything like that. Just a holding company, with only 1 shareholder and 1 director, yourself.
- Investment: Your 'investors' do not buy shares. Instead, you agree on selling stock options (=warrants), which are typically paid out as part of remuneration packages. These give the investor the right to become shareholder at a later point in time. The investor pays for this warrant the sum he/she would like to invest.
--> The investor thus does not become a shareholder yet. This means that you will remain the sole owner with 100% of the shares and the IBC continues as a holding company, trading (equities or whatever) for its own account. This would change when the investor exercises the options. Therefore, you stipulate in the contract that this can only be done after, let's say, 5 years. By then, the investor sells the holding back the options and buys back new ones, again with a term of five years.
Taxation
- The investor should not be taxed, as the profit is made on a financial derivative - which (at least in Europe, not sure about the rest of the world) is tax exempt.
- The holding's trading profits and fees will increase the book value of the company and thus the value of all warrants and your warrants specifically, respectively. Hence, your own investment increases in value. You can sell some of your own warrants back to the company to materialize these profits. Once again, you made profit with a financial derivative - which should be tax exempt in Europe.
Of course, if you spot a (potential) fault, don't hesitate to comment. I believe it could always be possible to further improve any structure.
- 'Investors': in Europe, but potentially globally.
- Type of business: for example an IBC in Belize. Undisclosed UBO and zero taxation, cheap. You set it up as a holding company. Not a hedge fund or financial institution or anything like that. Just a holding company, with only 1 shareholder and 1 director, yourself.
- Investment: Your 'investors' do not buy shares. Instead, you agree on selling stock options (=warrants), which are typically paid out as part of remuneration packages. These give the investor the right to become shareholder at a later point in time. The investor pays for this warrant the sum he/she would like to invest.
--> The investor thus does not become a shareholder yet. This means that you will remain the sole owner with 100% of the shares and the IBC continues as a holding company, trading (equities or whatever) for its own account. This would change when the investor exercises the options. Therefore, you stipulate in the contract that this can only be done after, let's say, 5 years. By then, the investor sells the holding back the options and buys back new ones, again with a term of five years.
Taxation
- The investor should not be taxed, as the profit is made on a financial derivative - which (at least in Europe, not sure about the rest of the world) is tax exempt.
- The holding's trading profits and fees will increase the book value of the company and thus the value of all warrants and your warrants specifically, respectively. Hence, your own investment increases in value. You can sell some of your own warrants back to the company to materialize these profits. Once again, you made profit with a financial derivative - which should be tax exempt in Europe.
