Last Updated on Mar 5, 2021 by James W
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Introduction:
Over the past 50 years, the business world has undergone a plethora of changes and innovations. Each new step is taken to ensure the survival and success of the business over an extended period of time. The latest innovation in business techniques to ensure minimum losses and expenses is Cell Captives. The idea has been around since the 1950s but its true potential has just started to show. If you have insured your business at Talisman Casualty Insurance Company, then their staff must have discussed the cell captive option with you.
Cell captives are simply defined as a cell that segregates a company’s assets and liabilities and prevents the two from overlapping. The cells are owned and controlled by the parent company known as the “core.” The cells are legally independent and the accounts of each cell are maintained by the core or parent company. Now, this might seem like a complex idea but the fact is since 2018, there has been a surge in cell captives. The following reasons can be attributed to its popularity:
1. Alternative to Traditional Insurance:
Insurance companies work on premiums received from a customer against an insurance policy. These premiums cost a lot, especially in the case of a business, so the owners might like the idea of cell captive. Since cell captives segregate assets and liabilities, it becomes easier to cover up for losses and costs as compared to when covered by an insurance company.
2. Low Capital:
Cell captives are operational on a low capital, making them an ideal choice for any business owner. Since they are a type of insurance, run and controlled by their core companies, it gives greater control to the owner. If everything is separated by a cell captive, it becomes easier for the core company to manage unforeseen losses.
3. Good for Small Companies:
Some of the biggest companies have benefited from cell captives, but a recent study shows that its popularity is down to its adoption by small companies. As discussed above, low capital makes it an ideal solution for small to mid range businesses, but another reason is its separation of assets and liabilities. Instead of buying a traditional coverage, cell captives provide a cheap solution to cover up losses.
4. Shutting Down:
Another reason for cell captive’s popularity is that it is easier to close down. When winding up companies, they require a lot of paperwork and legal documentation. Since cell captives are owned and controlled by a core or parent company, shutting them down becomes an internal matter and is easier to do.
5. Owner’s Control:
This is the biggest draw in forming a cell captive. These cells are formed by the parent company meaning that the owner has complete control over them. Assets and liabilities might be separated, but they are still accounted for by the parent company. So, all of the losses and profits arising, therefore are the owner’s responsibility giving him complete control of the cell.
Conclusion:
Businesses have been taking advantage of captive companies for decades and cell captive is an innovation in this regard. Small to mid range business owners are starting to see its benefits and hence the surge in popularity.
