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More Small Business Owners Are Forming Captives

There is an increasing use of captive insurance companies by entrepreneurs and small business owners
July 25, 2012

There is an increasing use of captive insurance companies by entrepreneurs and small business owners. Captives function like regular insurers, collecting premiums and paying claims, but are established by a parent company for its benefit, with any profit from its operations going to the company rather than the insurer. Since guidance was issued by the Internal Revenue Service in 2002, a spate of captives has been formed. Financial advisers tell small businesses that captives could help them save money on insurance and reduce income taxes. An article in the New York Times discusses the logic behind forming a captive, which small businesses should consider one, how they can achieve tax savings, regulatory concerns and potential abuses of the system.

Read more on the prevalence of captives: An Insurer of One’s Own? (New York Times 7/13/12)

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