British Virgin Islands: Types of Company
On 1 January 2007 the British Virgin Islands Business Companies Act 2004 (the BVI BC Act) became the sole Business Companies Act in the jurisdiction, creating an environment where financial institutions and corporations can undertake a wide range of structured asset and project finance transactions in the BVI.
In October 2004 Chief Minister Dr. D. Orlando Smith had informed the country’s Legislative Council that a two-year transition period would be put in place to smooth the changeover to the new Business Companies Act, which lowered the income tax rate to 0% for both local and International Business Companies and effectively removed the distinction between 'offshore' and 'onshore' entities.
The new IBC legislation was drafted to ensure the territory was fully compliant with the European Union (EU) Savings Tax Directive and EU Code of Conduct on Business Taxation, as required by the United Kingdom of all its Overseas Territories.
Under the transition arrangements, new incorporations were possible under old legislation throughout 2005. From 2006, new incorporations had to be made under the new Business Companies Act, although companies already on the register were permitted to operate under the old IBC Act or Companies Act for an additional year.
The Act requires companies to use a registered agent to ensure compliance with the new laws.
Under the 1984 IBC Act, which preceded the 2004 Business Companies Act, just one corporate form was available, that of the company limited by shares. Under the new regime, several different types of companies can be incorporated. These are:
- Companies limited by shares. Likely to remain the most popular form of BVI company. (For more detailed information, see the British Virgin Islands International Business Company section below);
- Companies limited by guarantee not authorised to issue shares. This corporate form is likely to prove useful for not for profit organisations;
- Companies limited by guarantee authorised to issue shares. This 'hybrid' type of company provides greater flexibility in structuring transactions, as a result of its combined equity and guarantee membership;
- Unlimited companies authorised to issue shares. This structure provides greater transparency, as it is possible to look through the company to its shareholders; and
- Unlimited companies not authorised to issue shares. This type of company could be used to ensure effective estate planning.
The Act also allows companies to be registered as Restricted Purposes or Segregated Portfolio Companies. The former would likely be used primarily in structured finance transactions, while the latter's use will be limited to mutual funds and insurance companies.
The legislation allows more flexibility on the name that can be used by a BVI business company, and allows the re-use of the name of a company which has been previously struck off from the register, has changed their name, or been dissolved. The Act also permits company names to contain foreign characters, which should be particularly attractive to company owners in the Far East.
The BVIBC Act has abolished the concept of authorised share capital and replaced it with a maximum number of shares that the company is entitled to issue.
It has also removed the requirement that a dividend can only be declared and paid out of 'surplus', leaving in place the pre-existing solvency test requirement, and has boosted the rights of minority shareholders.
As previously stated, a registered agent must apply to form the company and provide a written consent to act, but the registered office of the company need not be the address of the registered agent, although it must be within the BVI.
The Act has also formalised and tightened the record keeping obligations of companies.
Bearer shares are now prohibited unless authorised by the memorandum or articles of association, and bearer share certificates must be deposited with a custodian who has been approved by the BVI Financial Services Commission.
A company which had existing bearer shares (created before 1 January 2005), and which re-registered on 1 January 2007, was obliged to deposit its bearer shares with an appropriate custodian on or before 31st December 2009.
Those eligible to apply as an “authorised” custodian are service providers licensed under any BVI financial services legislation, as well as bodies corporate incorporated or formed outside the BVI that are not resident in, and do not have a place of business in, the BVI. Those eligible to apply as a “recognised” custodian are investment exchanges or clearing organizations that operate securities clearance or settlement systems in a jurisdiction which is a member of the Financial Action Task Force.
All applicants to be “authorised” custodians have to satisfy the Financial Services Commission that they meet certain “fit and proper” criteria and have the necessary systems in place for safe custody of their bearer shares. For bodies corporate, the Commission will consider the prudential regulation and anti-money laundering regulations with which the bodies have to comply.
A company issuing bearer shares must provide the Custodian with:
- the full name of the beneficial owner of the shares; and
- the full name of any other person having an interest in that share or a statement to the effect that no other person has any interest in the share.
However, in July 2007, the British Virgin Islands Financial Services Commission (FSC) announced that several amendments were being readied to the new Business Companies Act that would, among other things, establish new, simplified provisions for the transitioning of bearer share companies to non-bearer share companies.
The original transitional provisions required companies to fully immobilise their shares by 31 December 2010. However, the FSC said that it had become aware of industry concerns that compliance with the transitional arrangements would place a huge burden on the sector, given the recent introduction of new companies legislation and a new online companies registry.
"Perhaps even more important, it would cause considerable inconvenience to the directors and owners of former IBCs who will have to pass resolutions amending their memoranda of association," the FSC observed.
"The BVIBCA and the IBC Act before it were designed to provide a legal mechanism for incorporating companies without unnecessary administrative burdens. The effort that would be required to comply with the existing transitional provisions is not consistent with this underlying philosophy," the Commission noted.
The FSC said that it had listened to the representations that it had received from industry, and had tried to find a workable solution that would achieve the immobilisation of all bearer shares before 2010, but which would impose the minimum administration on BVI companies.
An Order by the Executive Council attempted to achieve this by deeming that the memorandum of every former IBC will be amended with effect from the transition date to prohibit the issue of bearer shares, unless the company elects that the deeming provision should not apply; and by abolishing the staged increases in annual fees between 2008 and the transition date.
The FSC announced that, given this will make the transitioning of most bearer share companies to non-bearer share companies a straightforward process, the transition date was brought forward one year from 31 December 2010 to 31 December 2009.
During the years 2008 and 2009, a former IBC that is a bearer share company paid the same fee as a non-bearer share company. On 31 December 2009, the memorandum of a bearer share former IBC was deemed to be amended to prohibit the issue of bearer shares, and the company became a non-bearer share company. It was open to any bearer share former IBC to elect to disapply this deeming provision. As a consequence, the vast majority of former IBCs needed to do nothing, according to the FSC. An IBC that wished to continue to issue bearer shares had to disapply the provisions of the new Act.
The full text of the BVI Business Companies Act 2004 can be found in the Tax News Resources section.