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Newsletter | Articles
  New BVI legislation explained
Background
The new BVI Business Companies Act, 2004 (“the New Act”) came into force on 1 January 2005. The New Act presently runs alongside the International Business Companies Act (Cap. 291) (“the Old Act”) and the local Companies Act (for tax resident companies) and until 31 December 2005 it was still possible to incorporate all three types of entity. However, both the International Business Companies Act (Cap. 291) and the local Companies Act will be phased out in the near future leaving just the New Act. Details of the transitional period are set out below.
The intentions of the New Act are to amend and update the law generally but primarily to address the “ring-fence” issue. This is where a jurisdiction is considered to be a “tax haven” by virtue of the fact that it offers preferential tax rates or regimes to non-residents. This issue will be eliminated by the introduction of a zero rate of tax for all companies formed under the New Act whether for residents or non-residents.
Some minor changes and adjustments to the New Act were recently introduced by the BVI Business Companies (Amendment) Act, 2005 (“the Amendment Act”). These changes are included in this information sheet.
Terminology
Companies formed under the New Act are being referred to as “BVIBC’s” which can be confusing as under the Old Act they were referred to as “BVI IBC’s”. It is expected that clients will continue to refer to both types of companies in this way.
Transitional Arrangements
- From 1 January 2006, new companies will only be able to be formed under the New Act although existing companies will be able to continue to operate under the existing legislation (i.e. the Old Act or the resident Companies Act) during the whole of 2006.
- During 2006, existing companies formed under the Old Act may apply to be re-registered under the New Act.
- On 1 January 2007, all companies that are not already registered under the New Act will automatically be re-registered under the New Act and thus will have to operate under the provisions of the New Act.
Key Features of the New Act
- There is no longer a requirement for authorised share capital and companies may have shares of no par value. This means that any value may be applied to shares at the time they are issued rather than them having a minimum nominal value. The maximum number of shares that a company is allowed to issue is stated in the Memorandum of Association and this follows similar rules as the Old Act in terms of the fees payable on incorporation and annual licence fees. The standard number of shares for most companies is therefore likely to be 50,000 shares of no par value and, providing that there are no bearer share provisions, a company with 50,000 shares will attract the minimum Government fee of US$350. (See below for further details on licence fees.)
It is still possible to have shares with a par (nominal) value but this should be stated slightly differently in the Memorandum of Association, for example, instead of stating “US$50,000 divided into 50,000 shares of US$1.00 each” it should be stated simply as “50,000 shares of US$1.00 each”.
- Foreign character names are now recognised and companies can also be incorporated using their company number as a name, for example, “BVI Company Number 2723451 Limited”.
- New provisions for the registration of charges at the Companies Registry have been introduced.
- Under the New Act, it will be possible to incorporate companies limited by guarantee, hybrid companies and unlimited companies with or without share capital. There is also provision for Segregated Portfolio Companies (usually referred to in other jurisdictions as Protected Cell Companies) and for a Restricted Purpose Company, designed to be used as a special purposes vehicle (SPV) for possible use in certain finance transactions or joint venture operations.
Bearer Shares
The introduction of the New Act does not materially affect the transitional procedures that were introduced for companies incorporated under the Old Act prior to 1 January 2005 in respect of bearer shares and other matters as part of the International Business Companies (Amendment) Acts of 2003 and 2004. However, the Amendment Act has now introduced some certainty regarding the uplifted fees for companies that still have bearer share provisions at 1 January 2008.
Annual Licence Fees
- The present position, which will remain the case until 31 December 2007, is as follows:
- Companies formed under the Old Act before 1 January 2005 with share capital not exceeding US$50,000 and with or without provisions to issue bearer shares pay US$350.
- Companies formed under the Old Act, on or after 1 January 2005, or the New Act with share capital not exceeding US$50,000 or 50,000 shares and without provisions to issue bearer shares pay US$350.
- Companies formed under the Old Act, on or after 1 January 2005, or the New Act with share capital not exceeding US$50,000 or 50,000 shares but with provisions to issue bearer shares will pay US$1,100.
- Companies formed under the Old Act or the New Act with share capital of more than US$50,000 or 50,000 shares respectively and with or without provisions to issue bearer shares will pay US$1,100.
- Under the transitional procedures, from 1 January 2008 to 31 December 2010, companies formed under the Old Act before 1 January 2005 that have not removed their provisions to allow bearer shares will be subject to increased licence fees.
There will be two scenarios as follows:
- Fees for companies that simply still have bearer share provisions will be:
US$600 if the authorised share capital does not exceed US$50,000; or
US$1,350 if the authorised share capital exceeds US$50,000.
- Fees for companies that still have bearer share provisions and have bearer shares in issue but which are held by a recognised custodian will be:
US$500 if the authorised share capital does not exceed US$50,000; or
US$1,250 if the authorised share capital exceeds US$50,000.
Deposit of Bearer Shares with an Authorised or Recognised Custodian
Where a company retains the ability to issue bearer shares in its M&AA and bearer shares are in issue they must be “immobilised” by them being deposited with an Authorised or a Recognised Custodian, as follows:
- Companies incorporated under the Old Act before 1 January 2005 have until 31 December 2010 to ensure that all bearer shares in issue are held by a Custodian.
- Companies incorporated under either the Old Act or the New Act on or after 1 January 2005 must deposit bearer shares with a Custodian as soon as they are issued.
An Authorised Custodian is an organisation that is approved as such by the BVI FSC following a specific application to them. The process is quite onerous but an Authorised Custodian does not have to be resident in the BVI.
A Recognised Custodian may be an investment exchange or clearing organisation that operates securities clearance or settlement systems in a FATF jurisdiction that is specifically identified by the BVI FSC. This is not currently something that one can just apply for. A current list of Recognised Custodians is available if required and ILS BVI can arrange for bearer share certificates to be deposited as appropriate.
Register of Directors
Companies incorporated under the Old Act before 1 January 2005 have until 1 January 2006 to establish and maintain a Register of Directors at their registered offices. Please note that this information is not filed at the Companies Registry so is not publicly available.
Companies incorporated under either the Old Act or the New Act on or after 1 January 2005 must comply immediately with the requirement to establish and maintain a Register of Directors.
Appointment of First Directors
Formerly there was no limit on the time by which the first director(s) of a company had to be appointed. The new Act originally required that directors be appointed within 30 days of incorporation but this has now been altered by the Amendment Act to increase the time period to 6 months.
Companies incorporated under the Old Act before 1 January 2005 had until 1 January 2006 to appoint the first director(s).
All other companies must comply immediately with the requirement to appoint the first director(s) within 6 months of incorporation.
Action Required
The timing required for action, if any, is dependent upon the status of the company in question as set out above, but matters to consider are as follows:
- Arrange to deposit any bearer shares in issue with a Custodian or convert the bearer shares to registered form.
- If a company has bearer share provisions in its M&AA, but does not require them, arrange for them to be removed as soon as possible, but in any event before 31 December 2010. (See also 4 below.)
- Consider if it is preferable for any reason for a company registered under the Old Act to re-register itself voluntarily under the New Act during 2006.
- Once a company has been re-registered, either voluntarily during 2006 or automatically on 1 January 2007, consider the adoption of new M&AA relevant to the applicable laws. (See also note 2 above.) This recommended so that the M&AA does not contradict and is fully consistent with the law that will then apply to the company.
- Ensure that first director(s) are appointed at the earliest opportunity and in any event no later than 6 months from incorporation.
- Establish and maintain a Register of Directors at the registered office.
More information can be obtained from Peter Beighton or from ILS BVI.
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