The objective of starting an offshore company or International Business Corporation is twofold. Above all, the separation of the legal entity from its shareholders results in limited liability. The second reason to start a company offshore is the inviting, cost-efficient, and business friendly environment for incorporation. At the end of the corporate lifecycle, when the offshore company loses its value and becomes obsolete, the corporate vehicle can be shut down. Since the offshore company has legal personality itself, and enters into contracts and agreements with third parties, there are procedures in place to close such companies.

Offshore companies and International Business Corporations have limited liability. To protect creditors, capital maintenance is required. Such capital maintenance is needed to avoid the return of capital, directly or indirectly to the shareholders ahead of the winding up of the company. Shareholder equity is therewith subordinated in the creditor hierarchy upon closure of the company. Failure to follow this procedure allows the court to investigate the possibilities to pierce the corporate veil, or, when the company has been struck of the registry impose direct liability of the shareholders for the capital maintained, and the beneficial owners for the debts of the company.

Company closure can be initiated by creditors, regulators, or shareholders. The closure can thus be voluntary or mandatory. Liquidation follows a strict procedure. Company assets are collected and realized. This includes the recovery of so-called back to back loans. The liabilities are discharged and only when there is a positive balance, shareholders receive a payout. In case of insolvency, the creditor hierarchy determines the order under which creditors are paid. In general, claimants with priority positions, fixed and floating charges and other superiority are paid in full first. The surplus is paid to unsecured creditors. Only when there is anything left, shareholders can receive a remaining payout.

Misleading acts and abuse is forbidden and can trigger personal liability against the wrongdoer. Since the offshore financial sectors involves activities in foreign jurisdictions, actions against the wrongdoer can take place in different parts of the world. For local taxpayers legal action for their role in an offshore company can have devastating consequences when domestic tax authorities become involved and local regulation requires beneficial owners to declare their offshore holdings and segregated private property and assets.