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Report:
International Business Center
in Spain's Canary Islands
Prepared for JJ Luna, Canary Islands Press January 2011 J Clark, Attorney ObjectiveThe objective of the Canary Islands Business Center (CIBC) is to provide international clientele with a virtual but legitimate “Principal Place of Business” while enhancing information privacy. Purpose of This ReportThe purpose of this report is to consider legal and logistical issues related to setting up and maintaining the CIBC as well as offering its services to select sophisticated business clientele. DisclaimerThis report has been prepared for JJ Luna and Canary Islands Press. J Clark, Attorney does not have any specific information with respect to third party clients of JJ Luna. Such clients should consider this report as guidance information; it is not legal advice. Anyone considering the services of the CIBC is advised to consult with their personal legal and tax advisers before purchasing and using CIBC services. JJ Luna reserves the right to refuse this service to anyone for any reason. He offers this service to clients who meet his criteria for desiring privacy: such clients will have done their research and not require constant support; they will desire privacy but not be paranoid about it; and they will be reasonably responsive to communications from JJ Luna and CIBC management. Outline of Services Offered • Principal Place of Business in Canary Islands • Physical Mailing Address in nearby town • Phone Number (never answered) • Mail Forwarding • Document Storage • Optional Mail Processing: Open, Scan and Email Forwarding The Need for a Principal Place of BusinessThere are multiple reasons for establishing a Principal Place of Business: • Disclosure on official government documents, applications, tax returns, public contracts, etc. • Listed in private documents, contracts, letter agreements, term sheets, etc. • Publication in marketing materials, websites, blogs, domain registrations, etc. • Required for banking purposes • Storage of business records available for review by authorized parties (owners, investors, shareholders, government agencies, etc.) The CIBC provides a real but physically remote location for you to adopt as your Principal Place of Business, and which can be disclosed publicly and privately. Furthermore, it can be defended as legitimate for business and personal privacy reasons. That said, you will not be able to legally evade taxes, or avoid court jurisdiction in places where you are known to transact business, or known to have organized a business entity. Read the remainder of this report for important information on understanding how the CIBC can and cannot protect your privacy. Determining “Principal Place of Business”Regardless of the need for a Principal Place of Business, determining whether a location disclosed as a Principal Place of Business is in fact the actual principal place of business requires looking at the specific circumstances of the operation of the business and its managers. Prior to the Internet and virtual businesses, the Principal Place of Business was the brick and mortar “headquarters office” where management ran the business and corporate records were maintained. Today, this can be difficult to determine. Government agencies, courts, businesses, etc. all have different reasons for asking, “What is your Principal Place of Business?” There are multiple legal definitions which confuses the issue. What follows are some various perspectives on Principal Place of Business and general guidance on strategies that can be adopted: Common Law DefinitionAccording to the Nolo’s Plain-English Legal Dictionary, the common law definition of Principal Place of Business is as follows: The office of a business where the books and records are kept and where executives manage the company. All legal dictionaries contain roughly this same definition. However, in this age of virtual businesses and data storage in the Internet “cloud,” it can be difficult to determine answers to these questions: Where are the records kept? Cyberspace? A garage? Where do the “executives” manage the company? At home? On the road? In multiple states or countries without any routine or pattern? The CIBC would offer a legitimate way to provide a physical, but remote, location outside the United States where documents and written executive decisions are actually stored. A nearby physical address could be used for mail and receiving (infrequent) visitors who might need to review documents filed at the Principal Place of Business. In the case of a legal but low-profile business operating virtually from many locations (or from a location that requiring personal privacy), the CIBC could be very helpful in establishing a Principal Place of Business--one that could be plausibly defended as legal and proper should the need arise.
Bottom Line: Run a low-profile business and focus everyone’s attention on a legitimate but remote Principal Place of Business where key records, especially records of key decisions, are filed.
Court Jurisdiction Regardless of a business manager or owner’s statements about where the Principal Place of Business is, the issue of determining Principal Place of Business is a question of facts and circumstances. This is important, because we must assume a company can always be sued in the jurisdiction where its Principal Place of Business is located. (The exceptions to this are rare.)
Most people prefer to sue companies somewhere convenient. The CIBC is located in Spain’s Canary Islands off the coast of Africa, definitely not convenient.The US Supreme Court in February 2010 wiped away older definitions and adopted the “nerve center test” as the SINGLE test for establishing U.S. Federal Court jurisdiction over business entities.
Although this case only applies to questions of “diversity jurisdiction” (a strategy used by corporations to get lawsuits out of state courts into friendlier Federal courts), you can be sure it will be looked at as the “gold standard” for determining Principal Place of Business in other types of lawsuits. According to the nerve center test, the Principal Place of business is the location where key management decisions are made. The best business privacy strategy for avoiding a forced determination of Principal Place of Business is to avoid doing things which make other people or governments want to take you to court.
The next best privacy step is to create as much legitimate evidence as possible that points to your choice of Principal Place of Business as the real Principal Place of Business. The Canary Islands Business Center would help do this by providing businesses with a “home” for legitimate business activities when it is not obvious where the nerve center might be located.
No court is going to take kindly to using the CIBC to hide illegal activities; in fact courts could consider the CIBC address as evidence of an intention to hide from justice if that is all it is used for.
Bottom Line: Operate lawfully and keep customers, vendors, etc. “happy.” Stay out of court to avoid a forced determination of Principal Place of Business.
Domicile vs. Principal Place of BusinessThe domicile of a business, such as an LLC, corporation or trust, is the place where it was formed. A business entity can ALWAYS be sued in the place where it was formed. This applies to any state, but for example, a New Mexico LLC can always be sued in New Mexico State Court and in many cases NM Federal circuit court as well. Therefore, any party that is aware of a CIBC business that is a New Mexico LLC can bring a lawsuit in New Mexico.
If the name of your LLC is known, it is not difficult for someone to find it on Google. Google indexes websites that list the names of every new LLC formed in various states. For increased privacy, a business might choose a name that is common in multiple states, (e.g. McDonalds LLC, BOOKS LLC, etc.).
EXAMPLE: You are running a virtual consulting business from home in California with clients throughout the United States and wish to avoid being be identified or sued in California. You set up the following structure:
• A single-member New Mexico LLC that does not list your name in the Articles • LLC is disregarded for tax purposes by the IRS • Principal Place of Business in the Canary Islands • Use the CIBC address in contracts but do not list the domicile of the LLC. (Lawyers commonly put an LLC’s or corporation’s domicile into agreements, but this is not necessary for making a contract valid).
This type of strategy will increase your privacy and raise the cost on anyone who might threaten harassment or nuisance court action against the business. Of course, if one mentions in emails that his or her home is in California and how great it is to do business there from home, that’s going to reduce the level of privacy and protection.
Bottom Line: A business can be sued in the state where it was formed (if known). Use common business names that make it difficult to locate the state of domicile.
Tax Purposes
For IRS Federal tax purposes the question is, “Where are your most important activities performed and where is most of your time is spent?” This will generally determine Principal Place of Business for tax reporting. If you have more than one regular place of business, your “tax home” (where you pay your taxes) will be considered your Principal Place of Business.
According to the IRS, if it’s difficult to figure out where your Principal Place of Business is, it will be determined by comparing:
1. The time ordinarily spent working in each location;
2. The degree of your business activity at each location;
3. The amount of your income from each area;
4. The taxpayer's permanent residence; and
5. Whether business at one location is temporary or indefinite.
No single factor matters by itself. The relative importance of each factor will vary depending on the facts of a particular case. For example, where there are no substantial differences between incomes earned in two places of business, your tax home is probably the area in which you spend more of your time. Where there are substantial income differences, your tax home is probably the area in which you earn more of your income.
Bottom Line: Do not use the CIBC as your state or Federal “tax home.” CONSULT PROFESSIONAL TAX AND LEGAL HELP BEFORE USING THE CIBC ADDRESS ON ANY IRS FORM AS “PRINCIPAL PLACE OF BUSINESS.” Document Storage StrategySince determining the location of Principal Place of Business at common law depends on where records are kept and where decisions are made, the strategy is to provide both a complete set of records that would be expected at a Principal Place of Business AND records of key management decisions that indicate they were effective as of filing at the CIBC. If you make all your key decisions in a home office, and it’s obvious to outsiders that you make your decisions there, this won’t help much. If, however, there is no obvious place you make decisions, and all of your decision documents adopt the CIBC address as the physical location of decisions, then you will have a good chance of defending your adopted Principal Place of Business against anyone trying to prove otherwise.
Originals vs. Copies
The CIBC cannot be responsible for destruction of documents due to fire, or other events beyond it control. Except for Meeting Minutes and Resolutions of your business, clients should NOT keep original documents at the CIBC. Originals should be kept in a secret fire-proof location that is NEVER publicized. Copies are acceptable at the CIBC. Most originals are not important because it is the information in the documents that is important for determining Principal Place of Business.
BOTTOM LINE: DO NOT STORE ORIGINAL DOCUMENTS OR INVESTMENT INSTRUMENTS AT THE CIBC EXCEPT FOR MEETING MINUTES AND RESOLUTIONS. Store copies instead.
Meeting Minutes and Management Resolutions It is critical that written meeting minutes and management resolutions be maintained at the CIBC if you wish the CIBC address to withstand scrutiny as your actual Principal Place of Business. BASIC PROTECTIONState in management resolution that “This resolution dated XXXXX is effectively made at XXXXXXXX, LP de GC, SPAIN, the company’s Principal Place of Business, and it shall be filed with company records located there.” Sign two originals and send one to the CIBC where it will be date-stamped and initialed for filing. The resolution may be in a sealed envelope. All sealed records will be date-stamped, initialed and filed. MAXIMUM PROTECTION (Optional)Optional service at additional cost: State in the resolution: This resolution is effectively made at the Principal Place of Business XXXXXXXX, LP de GC, SPAIN, and shall be effective upon date of filing at the Principal Place of Business.” Sign two original copies (also make a copy for yourself) and send to the CIBC. Both will be date-stamped and initialed and one will be returned to you. Below is a suggested list of the type of documents that would evidence a location as a legitimate Principal Place of Business. The main thing is, government agencies assume that the Principal Place of Business maintains all key records regarding the running of an enterprise. Documents Common to All Businesses • Business entity charter documents, if any. (E.g. Articles of Organization, Certificate of Organization) • Operating Agreement, Bylaws , Partnership Agreement or Trust Document. • Meeting Minutes • Management Resolutions • Quarterly or Annual Financial Statements • Tax returns • List of persons authorized to gain access to files • Contact information in case of requests to review documents, or any other events affecting files located at the CIBC. Personal Investment Holdings • List of accounts and other holdings• Instructions for disposition of assets, such as estate planning documents, (wills, trusts, etc.) Internet Business • List of domain names • Contact information for each domain • Contracts with software providers and ISPs • Advertising agreements (Google Adsense, etc.) Service or Product Business • Customer and vendor contact lists • Key business contracts with vendors and customers • Insurance policies and warranties Logistics of Services OfferedBusiness AddressThere are two addresses associated with the CIBC. One is the “Principal Place of Business” for which only the town is provided, and the other is the mailing address in which a full address will be provided. Any contact with the CIBC will be done using the mailing address, whereas records will be maintained in locked files at a separate location that is not publicly disclosed except for the town. In-person inquiries can be made at the mailing address.For example only, in contracts you would write:XYZ LLC, Santa Lucia, LP de GC, SPAIN. Or, if a street address is required:XYZ LLC, Santa Lucia, LP de GC, SPAIN. Office address Calle D.J. Manrique, 34, 35523 Ingenio, LP de GC, SPAIN. These are NOT the actual addresses. You will receive the address information only upon purchasing the services of the CIBC. Example Office Mailing Address Format (for your business using the CIBC) Calle D.J. Manrique, 34 35523 Ingenio LP de GC SPAIN Example Format for Principal Place of Business Santa Lucia LP de GC, SPAIN Phone NumberA Lanzarote telephone number will be provided with purchase of CIBC services. The phone number will ring, but will not be answered.
Mail ForwardingLimited mail forwarding is included. If you expect more than a dozen letters per year, you must make arrangements with JJ Luna, <JJL [a t] canaryislandspress [d o t] com>. If you require expedited forwarding, a postage surcharge will be added. Mail Processing (Open, Scan and then Email)For the details of mail-forwarding, with an option to have mail scanned and e-mailed to you, contact JJ Luna. <JJL [a t] canaryislandspress [d o t] com> Hardcopy Document StorageAt this time, the CIBC is only accepting hardcopy documents for file storage. If you would be interested in electronic document storage, please notify JJ Luna and he will alert you if and when that option becomes available. Documents you wish to be kept at the CIBC can be in two forms: UNSEALEDAddress and seal the outer mailing package. Inside include one or more manila type envelopes that are NOT sealed. The inner envelopes must clearly be marked with the CIBC customer name so we know who the file belongs to. Inside each envelope should be a list of the names of anyone authorized to access the files. SEALEDIt is possible to store sealed records at the CIBC. Address and seal the outer mailing package as normal. Include inside the package manila type envelopes which are sealed in whatever manner you choose. The outside of the envelope must indicate the name of the CIBC customer so we know who it belongs to. You must provide a separate list that includes the name of anyone authorized to open (unseal) and review the contents of the envelope. We will not be responsible for re-sealing the envelopes. In all cases, our local representative will stamp and initial the date of filing of each envelope. Anyone showing up at the CIBC who is not on the list, or doesn’t have a proper legal order, will be denied access until we can contact you for further instructions. Anyone authorized will be allowed access during regular business hours. You will be notified within 24 hours whenever anyone attempts to access your files. ConclusionThe CIBC can greatly enhance legitimate business privacy and security needs while meeting basic requirements for a Principal Place of Business. However, since ultimate determination of Principal Place of Business is based on the individual facts and circumstances, of each client, JJ Luna and the CIBC make no guarantee or warranty regarding use of the CIBC as a Principal Place of Business. The CIBC cooperates and complies with all legal actions and written orders presented to it by appropriate government agencies and officers. The CIBC will not knowingly or intentionally help any client that is not conducting business legally or ethically.
======================================= For details of the various available plans for this service, please contact JJ Luna at JJL [at} canaryislandspress . com
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