The use of offshore jurisdictions in venture capital financing and legal risks for investors

Abstract

Offshore jurisdictions play a crucial role in the global financial system, particularly in the field of venture capital investment, offering flexibility, speed of transactions, and tax optimization. However, at the same time, the level of legal uncertainty is increasing, creating potential threats for investors. The purpose of this article is to study the use of offshore jurisdictions in venture financing, identify the associated legal risks for investors, and outline ways to minimize such risks in the context of the current transformation of financial markets. Methods. The paper uses a comprehensive approach that includes methods of legal analysis, comparative legal research, and economic and legal risk assessment. The analysis was based on international and Ukrainian practices in the functioning of venture capital, utilizing offshore jurisdictions. Results. The study revealed that offshore structures are widely utilized in venture capital investments to facilitate investor exit, structure deals, and safeguard assets. At the same time, several significant legal risks have been identified, including a lack of transparency in corporate structure, complexity in protecting investor rights in the event of corporate conflict, and increased regulatory requirements for reporting and anti-money laundering. It has been established that the lack of a unified approach to regulating offshore venture capital investment in Ukraine complicates the legal assessment of transactions involving such jurisdictions and creates risks of losing control over projects. Conclusions. To reduce the legal risks for investors in the process of venture financing using offshore companies, it is advisable to improve the mechanisms of international legal cooperation, develop clear national approaches to tax transparency and the protection of shareholders' rights, and introduce special provisions into Ukrainian legislation to protect the interests of resident investors when investing through offshore jurisdictions.