MONACO: TYPES OF COMPANY

The categories of business entity in Monaco are defined by the Commercial Code, which is essentially similar to its French equivalent. For business-people used to common law jurisdictions, the civil law company framework can be confusing: companies are still companies, but their management structure is defined by statute to a far greater extent, and must be entered into the official commercial registry if it is to have legal force. 'Directors' have extensive statutory powers but are not normally executive: executive management is delegated to a named Managing Director (administrateur delegue) or to a General Manager (Gerant) whose name is entered into the Commercial Register - and hence he derives his power.

Until recently, one of the key differences between the Monagesque Commercial Code and most others, including the French one, was that the convenient and reasonably simple SARL did not exist. A SARL (Societe a Responsabilite Limitee) is the nearest equivalent to the Anglo-Saxon limited company, although the similarity should not be pushed too far. The Societe Anonyme (SA) is the grander type of civil code limited company and is a much more constipated form - there isn't an equivalent in common law jurisdictions.

Article 26 of Monaco's Commercial Code deals with the types of companies that can be incorporated in Monaco. In offshore terms limited liability companies incorporated in Monaco are not attractive corporate vehicles because of the extremely cumbersome and bureaucratic formation procedures, the fairly heavy taxation of foreign activity, and the rather expensive professional services in Monaco. See Direct Corporate Taxation and Offshore Legal and Tax Regimes for details of Monagesque corporate taxes and low-tax alternatives.

As of April 30, 2002, there were 40 Corporate Service Providers (CSPs) licensed to operate in Monaco. The licensing requirements are tiered with all applicants required to meet specific minimum standards including a detailed client identification protocol, appropriate education and experience, verification of source of funds, and a police background check.

Additional requirements must be met when the legal form selected to hold the license is a Monegasque limited liability company (Société Anonyme Monegasque, SAM). Conditions for approval unique to the SAM include minimum capitalization of EUR150,000, a requirement to retain the services of a notary, appointment of two statutory auditors from an approved list who must prepare an annual statement and a statutory audit report. All individuals and partnerships are licensed for two years renewable upon reapplication.

For CSPs that are not SAMS, oversight is currently not as robust as the licensing process. The DEE has power under Law No. 1.144, 1991, to conduct on site reviews. This authority has been sparingly employed.

Monegasque regulators estimated that approximately 3,950 offshore companies and 725 trusts were under CSP management, as at April 30, 2002.

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Monaco Societe Anonyme Monegasque

The Societe Anonyme Monegasque (SAM) has the following characteristics:

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Monaco Branch

A foreign company wishing to operate as a branch in Monaco must obtain authorisation, which involves submission of corporate documents, three years' worth of audited accounts, a statement of business intentions, evidence of available premises, and evidence of adequate funds.

Licences are normally issued for up to three years, and are not necessarily renewed automatically.

Branches of foreign companies are usually taxed at 35% in Monaco: a better plan may be to find a Monagesque manager, who is not taxed, rather than to set up officially.

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Monaco Societe En Nom Collectif

This form is similar to a common law partnership, in that the participants have unlimited liability. However the interests of the partners (associes) are denominated in book-entry shares (parts).

Unlike a partnership, the Societe en Nom Collectif is, as its name implies, better regarded as a company. It is formed on signature of its articles (statuts), which include a definition of the powers of the manager (gerant), who is liable alongside the partners (indeed he is one of them) for the partnership's debts.

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Monaco Societe En Commandite Simple

The Societe en Commandite Simple is similar to the Anglo-Saxon Limited Partnership. It consists of one or more general partners with unlimited liability, and one or more limited partners, who are liable only to the extent of their capital contributions.

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Societe a Resposibilite Limitee

New legislation in 2007 modified the Civil Code, the Commercial Code, and various Sovereign Ordinances and Laws to introduce the societe a resposibilite limitee, or SARL.

The new SARL is intended to provide a limited liability vehicle to enable smaller entrepreneurs based in the Principality to operate more flexibly and at a lower cost. Flexibility will be provided by an easier method of registration of corporate documents (cutting out the requirement for expensive notarial deeds), and by allowing only one director.

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Monaco Trusts

The concept of a trust in Monaco can be best understood in terms of its historical development. As a civil law jurisdiction the Principality enforced its internal laws governing strict heirship rules on any dispositions made by Monegasque residents. Consequently some British and United States nationals residing in Monaco appealed to the Government to be allowed to use the vehicle of a trust so as to be able to have the same flexibility to dispose of their assets on death as existed under the laws of common law jurisdictions of which they were nationals.

Law 214 was passed with a view to allowing foreigners resident in Monaco to set up trusts governed by their own national law. The law was not passed to create a body of Monegasque trust law or introduce the concept of a trust into Monaco. Unless Monegasque law makes express provision for a legal issue to be governed by its internal law (e.g. appointment of trustees) the courts of Monaco will apply the principles of the foreign proper law governing the trust as specified in the trust deed.

Monaco law also allows for a trust to be administered from but not registered in Monaco.

Monaco is not a good jurisdiction in which to form a trust since the key characteristics of a Law 214 Trust do not compare favorably with other offshore jurisdictions:

• Settlors must be residents of Monaco; thus a Monaco trust has little relevance to offshore financial planning;
• The trust deed must be registered with the result that information relating to the beneficiaries, settlors and property settled under the trust are easily verifiable matters.

In most offshore common law jurisdictions the converse applies. For further information on the legal structure of Monagesque trusts see Law of Offshore.

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Monaco Foundation

A Foundation has been described as the civil law equivalent of the common law trust. The administrators (like the trustees of a trust) run a Foundation and once founded the Foundation has a separate legal personality to its founder and administrators. The creation of a Foundation is often preferable to the creation of a Law 214 trust.

A Foundation created in Monaco has the following key characteristics:

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