Substance has moved from a filing tick-box to a real threshold. Here’s how families design people, premises, and processes that satisfy modern substance tests.
What substance means today. Across mid-shore and offshore hubs, “adequate” substance now implies decision-makers on the ground, commensurate employees, premises, and records proving control and risk. Templates without people are red flags.
Calibrating to activity. A fund management vehicle needs investment committee minutes, deal memos, and portfolio oversight logs. An IP company needs engineers, R&D contracts, and exploitation agreements. A holding company needs real board direction and treasury oversight.
Governance & cadence. Adopt a governance calendar: quarterly board, risk reviews, and annual strategy sessions in the chosen jurisdiction. Keep director packs, resolutions, and advice emails in one repository. Cloud folders with clear naming conventions speed audits.
Vendors and “outsourcing.” Outsourcing is allowed—but not abdication. Show oversight of administrators, accountants, and advisers. If a third party drafts every decision, the company may look hollow.
Payroll and premises. Even a small team matters. Shared offices can work if access logs and use are consistent. Track badge entries, VPN usage, and travel.
Mistakes to avoid.
- “Copy-paste” minutes signed months after the fact.
- Directors who never visit, approve, or challenge anything.
- IP vehicles with no engineers, yet claiming innovation.
Practical playbook. Write an Operating Facts Memo: purpose, people, processes, premises, providers. Keep it updated. Tie expense levels to claimed activities; auditors notice misalignments.
FAQ
- Is a resident director enough? No—substance is holistic: people, premises, and real decisions.
- Can small teams pass? Yes, if proportionate and the paper trail proves control.
Editor’s Note: Substance is an operating model, not a stamp. If it can’t run weekly, it won’t survive review annually.
Tags: Economic Substance, Governance, BEPS, Family Office