Other Issues When Forming a Captive

7.1. Selection of a legal Counsel

There are normally three areas that will require legal advice.

1. Captive Matters. Using a local counsel for regulatory issues in its domicile will greatly reduce the time that it takes to form a captive, as the counsel will have specialist knowledge of the legal issues. The counsel will be required to draft by-laws as well as incorporation procedures and file them with the relevant regulatory authorities.
2. Tax advice and input will be required from specialist attorneys. For group captives advice must be sought with regard to Securities and Exchange Commission (SEC) issues as unless exemption is sought, it may be necessary to go through the SEC registration process as the sale of stock to capitalize a captive may constitute a "public offering" under the 1933 Securities Act.
3. U.S. regulatory matters if the captive is offshore the captive owner will require the input of a separate attorney.

7.2. Adopting financial guidelines and forming a business plan

Procedural agreements will need to be put in place between the captive owner and manger and this should also include a long-term strategy as part of a business plan. The business plan will often be required by the potential fronting company as well as any investors and possibly the regulatory body responsible for approving the captive.

7.3. Election of Directors and Officers

Directors and officers are normally chosen from the member organisations however it may make sense to use non-executive directors who have experience of captives as well as local directors who can experience of the local regulatory authorities.

7.4. Selection of Investment advisors, banks and accountants

As a separate legal entity a captive requires the same services as its parent and other businesses. Often these services are available in the captive domicile from companies that are familiar with captives.

7.5. Selection of Auditors and Actuaries

Auditors play a role in ensuring that a captive is being properly managed and should be independent of the captive manger.

Actuaries are used by the captive to ensure that correct premiums are being charged and may be recommended by the captive manger.

7.6. Determine Tax issues

It is essential that a captive user consults with qualified persons with specialist knowledge to determine the tax deductibility of premiums paid to a captive.