Investing through a legal entity is a strategy that offers numerous benefits, including asset protection, tax advantages, and operational flexibility. However, several misconceptions deter individuals and businesses from leveraging this approach. In this article, we will debunk three common myths about investing through a legal entity and explore how Investor 2.0’s Investment Purpose Vehicle (IPV) simplifies the process, making it more accessible and efficient.
Misconception 1: Legal entities are only for large businesses, high net worth individuals or big investments
A common misconception is that legal entities are exclusively beneficial for large businesses, high-net-worth individuals, or substantial investments. This belief often deters small business owners and individual investors from considering the formation of a legal entity, potentially missing out on significant advantages.
Reality: Legal entities offer advantages to businesses and investors of all sizes
Establishing a legal entity, such as a Estonian OÜ, provides several benefits that are equally accessible and advantageous to small businesses and individual investors:
Transferability: A legal entity can provide continuity beyond the life of its owners as entities can continue operating, facilitating easier transfer of ownership or sale of the business in the future. Therefore, even small businesses and individual investors can leverage legal entities to protect assets and optimise tax obligations.
Limited personal liability: One of the primary benefits of forming a legal entity is the protection of personal assets. Owners are typically not personally responsible for business debts, meaning creditors cannot pursue personal assets like homes or cars to satisfy business liabilities.
Tax benefits: Certain legal entities offer different tax advantages. For instance, LLCs can benefit from pass-through taxation, allowing profits to be taxed at the individual member’s rate instead of the corporate rate, potentially lowering the overall tax burden whereas an Estonian OÜ can be used to defer taxes until profits are distributed. This gives an investor a great environment to build their portfolio for the long term.
Access to funding and investment: Formal business structures can make it easier to secure loans and attract investors. Many investors and lenders prefer to work with established legal entities, as they often provide a more stable and legally protected investment environment.
Misconception 2: Establishing and maintaining a legal entity for investment purposes is too complex and expensive
Many investors assume that setting up and running a legal entity for investments is overly complicated and comes with high costs. This misconception often leads individuals to invest under their personal name, potentially missing out on tax advantages, liability protection, and other benefits.
Reality: Setting up and maintaining a legal entity is more accessible than ever
While there are administrative steps involved in establishing a legal entity, Investor 2.0 has significantly simplified the process. Many jurisdictions offer streamlined online registration, and service providers can handle the paperwork, making the setup process efficient and affordable.
- Affordable registration and maintenance costs – Depending on the country, forming an investment-focused legal entity can be relatively inexpensive. In Estonia, for example, an OÜ (private limited company) can be established entirely online for a low setup cost, with minimal ongoing expenses.
- Automated and outsourced accounting – Maintaining compliance is easier than ever with modern accounting software and outsourced accounting services that handle bookkeeping, tax reporting, and financial statements, reducing administrative burdens and keeping the costs down.
- Minimal operational complexity – An investment-focused entity has fewer operational requirements than an active business. If the legal entity is used solely for managing investments, there is often little day-to-day administration beyond periodic filings and tax reporting.
These developments have made the establishment and maintenance of legal entities more manageable and affordable than ever before.
Misconception 3: Forming a legal entity in another country is difficult and complicated
Many investors believe that establishing a legal entity abroad is complex and should not be fiddled with, deterring them from exploring international opportunities. While it’s true that setting up a foreign entity involves understanding unfamiliar legal and regulatory landscapes, the process is often more manageable than perceived, especially with the right guidance and resources.
Reality: With proper and experienced support, establishing a foreign legal entity for investments is easier than ever
While challenges still exist, leveraging available resources can simplify the establishment of a legal entity in another country:
Utilising experienced services: Companies specialising in global expansion can handle the intricacies of foreign entity formation. They offer services ranging from entity setup to ongoing compliance management, allowing investors to focus on their core business activities.
Research and preparation: Understanding the specific requirements of the target country is crucial as each nation has its own set of regulations, documentation, and procedures for business incorporation but through a service provider like Investor 2.0, these complicated requirements can be mitigated and delegated.
Professional assistance: Engaging local legal and financial advisors can significantly ease the process. These professionals are familiar with the country’s business environment and can guide investors through the necessary steps, ensuring compliance and efficiency.
How Investor 2.0’s Investment Purpose Vehicle (IPV) Simplifies Investing Through a Legal Entity
Understanding the misconceptions and realities of investing through a legal entity highlights the importance of utilising platforms that simplify and optimise the process. Investor 2.0’s Investment Purpose Vehicle (IPV) is designed to address these challenges effectively.
Streamlined entity formation and management
Investor 2.0’s IPV offers a user-friendly platform that makes signing up to a personal investment vehicle easy and with as little friction as possible. The service provides:
- Entity formation: An Estonian OÜ is formed to your name
- Business bank accounts: A business bank account that is owned by your newly formed IPV to manage funds between broker accounts
- Broker accounts: Access to business broker accounts within Investor 2.0’s partner network such as Interactive Brokers through Estably
- Compliance: Your IPV will also be registered with LEI code, increasing the compliance and effectiveness of your IPV
- Administrative and accounting support: Your IPV’s accounting and annual declarations are managed by Investor 2.0, leaving you without having to worry about any bureaucracy.
Cost efficiency
By focusing solely on holding investments, the IPV structure minimises unnecessary expenses:
- Reduced overheads: Eliminating non-essential operations lowers costs associated with running a legal entity.
- Simple pricing: One simple monthly fee covers all the services, making it much more easier to manage and budget your finances.
Enhanced asset protection and tax benefits
The IPV structure ensures that investors can fully leverage the benefits of investing through an Estonian legal entity:
- Asset segregation: Proper structuring ensures personal assets remain separate from investment liabilities.
- Tax optimization: The platform provides insights into tax-efficient strategies, helping investors maximise returns and defer taxes until profits are distributed.
Professional network and support
Investor 2.0 connects investors with a network of professionals, offering:
- Expert guidance: Access to experienced advisors assists in making informed investment decisions.
- Educational resources: Comprehensive materials help investors understand the intricacies of investing through a legal entity.
At Investor 2.0 we want to make sure that investors get the right start to start growing their wealth for the long term.
So, schedule a demo call with Investor 2.0 and we can answer your questions specific to your needs and goals.
