Companies are said by lawyers to have their own legal personality a curious phrase that simply means they are able to buy and sell goods and services in the same way as an individual person.
Although the idea was dreamt up to enable entrepreneurs to raise money without the fear of losing all their remaining wealth should their businesses fail, companies can also be used in a non-commercial way to own assets such as yachts.
Trusts are a different concept. They have no such personality but are simply an arrangement whereby property is handed over by one person (the settlor) to another (the trustee) for the benefit of another (the beneficiary), on the basis that the property will be held and used as the settlor wishes. Although legal title is transferred from the settlor to the trustee, the settlors and beneficiarys rights are recognised and can be enforced through the courts.
Trusts were first used to protect the property of medieval knights while they were away on crusade, and like companies, their use has come along way since their invention. Until recently the concept of trusts was only recognised in UK Commonwealth countries and other former English colonies, but it is now possible to establish trusts in countries with very different legal traditions, such as Russia and China.
companies and trusts can help to isolate ownership when wealth is derived from developing or unstable countries where there is a risk of political rivals attempting to expropriate personal possessions
Establishing and administering a company or a trust is not without expense, but they make a lot of sense when it comes to buying and owning a yacht. Most importantly, companies and trusts can be used to lawfully reduce an individuals apparent wealth and subsequent personal tax exposure.
Companies are also used to form the basis of VAT-avoidance structures by putting the use of a yacht on a commercial basis and by using cross-border leases.
Occasionally yachts are involved in accidents, in which their liability can easily exceed their value. Should an owner be held liable, his or her other assets will be at risk, so it seems more sensible to ring-fence any such source of liability by owning the yacht through a company.
Similarly, companies and trusts can help to isolate ownership when wealth is derived from developing or unstable countries where there is a risk of political rivals attempting to expropriate personal possessions. And even for owners in the most stable surroundings, protection from creditors is usually desirable if they want to indulge in large, commercial risk-taking.