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ASSET PROTECTION: Concepts & Strategies for
Protecting Your Wealth,
by Jay D. Adkisson and Christopher M. Riser
(McGraw-Hill, 2004)
ORDER NOW |
New BVI Company Law
With the recent enactment of amendments
to the British Virgin Islands Business Companies Act, 2004 (“the new
Act”) the BVI has completed the introduction of its new company regime
to replace the International Business Companies Act, 1984 (“the IBC
Act”). The new Act reflects the BVI’s twenty years of experience as the
world’s leading corporate domicile during which time Almost 700,000
companies were established in the BVI. The legislation retains many of
the attractive features of the IBC Act and includes new provisions
designed to strengthen the new Act.
The new Act, like its predecessor, is
well drafted and easy to follow. It is likely, as was the case with the
IBC Act, to become the model statute for other international corporate
domiciles.
EXISTING INTERNATIONAL BUSINESS
COMPANIES
Companies formed before 1 January 2006
under the IBC Act can:
- During 2006 adopt new memoranda
and articles of association governed by the new Act; or
- Take no action and wait until 1
January 2007 when all IBCs, which have not adopted new memoranda and
articles of association, automatically will be re-registered under
the new Act.
Unless there is a specific need for a
company to adopt a new memorandum and articles of association, we
recommend that our clients allow the automatic provisions of the new Act
to operate.
NEW COMPANIES
Newly-formed BVI companies and
previously-formed IBCs adopting new articles and memoranda of
association have a number of new options.
New Types of Companies. The new
Act provides increased choice in the range of corporate vehicles. These
include companies limited by guarantee, restricted purpose companies and
segregated portfolio companies. The inclusion of new types of companies
is intended to provide a legislative framework for corporate vehicles
used in structured finance transactions. For example, restricted purpose
companies are frequently used in securitizations. Segregated portfolio
companies, previously only allowed in the insurance context, can now be
used by mutual funds.
Share Capital. Under the IBC Act
a company was required to state in its memorandum of association the
monetary value of its authorized share capital; for example: US$50,000
divided into 50,000 shares of $1 par value each. The new Act does not
require, as was customary, that a company state in its memorandum the
value of its share capital. Instead, the company need only state the
number of shares it is authorized to issue which can be an unlimited
number of shares. Under the new Act, a company’s memorandum of
association will state, for example, that the company is “authorized to
issue 50,000 shares.” It is still possible to utilize the concept of par
value so that the share capital can, for example, consist of 50,000
shares of $1 par value each. The government license fee of US$350
applies to companies that have the right to issue up to 50,000 shares.
The government fee increases to $1,100 where a company is authorized to
issue more than 50,000 shares.
Classes of Shares. Where a
company is authorized to issue different classes of shares the
memorandum of association must include this fact and describe the rights
attaching to each class of shares. Under the IBC Act rights attaching to
classes of shares could be determined by the directors alone. The new
provision is intended to provide improved protection for minority
shareholders.
Directors. Companies have six
months in which to appoint the first director of a company. A director
must consent in writing to act as a director. The new Act also
disqualifies persons under 18 years of age from serving as directors. If
a company does not appoint a director, then any person who manages,
directs or supervises the management of the company is deemed to be a
director.
Reserve Directors. Where a
company has only one individual member and that person acts as the sole
director of the company, that individual can appoint a reserve director
who will become the director of the company upon the death of the
individual. The reserve director must consent in writing to the
appointment. This provision avoids many of the practical difficulties
that can arise when a sole member/director dies. We suggest that any
clients in this situation consider providing for a reserve director by a
resolution of the sole member appointing a reserve director.
Directors of Subsidiaries. A
director of a company is required in exercising his/her powers to act in
the best interests of the company. To accommodate the many cases where a
company is a wholly owned subsidiary, the new Act expressly permits a
director of the subsidiary, where allowed by the memorandum or articles
of the company, to act in the best interests of the holding company even
though it may not be in the best interests of the subsidiary. This new
provision makes it easier for individuals and companies to accept
appointment as directors, particularly in, but not limited to, the case
of special purpose entities formed for structured finance transactions.
The new Act also contains similar provisions that allow a director to
act in the best interests of a shareholder where a company has been
formed to operate as a joint venture of its shareholders.
Flexibility in Company Names. It
is now possible to establish a company using a number e.g. “BVI Company
No. 1765 Limited” together with a company name in foreign characters
(e.g. Chinese). This provision is intended to assist users of BVI
companies located in regions such as Asia.
Company Seal. A company is
required to have a company seal. As was the case under the IBC Act,
documents (for example, share certificates) can still be executed by a
director without the need for a seal.
Ultra Vires. There is no
requirement to state the objects or purposes of the company in the
memorandum of association. The new Act offers flexibility on what may be
included in either the memorandum or articles of association. The new
Act eliminates the applicability of the ultra vires doctrine by
stating that every company has “full capacity to carry on or undertake
any business or activity, do any act or enter into any transaction” and
for these purposes has “full rights, powers and privileges.”
Corporate Records. The new Act
provides that certain records must be maintained in the BVI.
- Memorandum and articles of
association;
- Register of members;
- Register of directors;
- Copies of all notices and
documents filed by the company with the Registrar of Corporate
Affairs in the previous ten years;
- Minutes of meetings of
shareholders and directors; and
- Financial records sufficient to
show and explain the company’s transactions, and which will enable
the financial position of the company to be determined with
reasonable accuracy at any time.
These records generally are maintained
by the company’s BVI registered agent. If the original register of
members and register of directors is not kept by the BVI registered
agent, the registered agent must have a written record of the address
where the original register is kept. Similarly, if the company minutes
are kept outside of the BVI, the BVI registered agent must be advised of
the address where the minutes are kept. Our clients are provided with an
initial register of members and an initial register of directors upon
formation. If the address where your company’s records are kept has
changed since formation, please provide us with this new address so that
we may inform the BVI registered agent.
Registration of Charges.
Companies frequently create charges (mortgages, security interests) over
property which they own. The new Act requires that where a company does
create a charge over its property it keeps a register of charges at its
registered office or at the office of its registered agent. The new Act
also allows for the optional registration of the charge in a Register of
Charges maintained by the Registrar of Corporate Affairs. Either the
company or the chargee (the person who has a claim against the company)
may register the charge with the Registrar of Corporate Affairs. Charges
that are registered in the Register of Charges maintained with the
Registrar of Corporate Affairs have priority over charges that are
registered subsequently and over unregistered charges. Charges created
before January 1, 2005 enjoy the same priority as if the new Act had not
come into existence. The new registration of charges provisions provide
greater clarity than those which existed under the IBC Act. Note that
the priorities can be changed by agreement of the parties involved.
Permitting a chargee to register a charge with the Registrar of
Corporate Affairs brings BVI law in this area into line with similar
laws in other jurisdictions (such as U.S. laws for registration of
security interests under the Uniform Commercial Code.
Continuation. The BVI continues
to allow the migration (“continuation”) of companies formed under
foreign company laws to the BVI Register of Companies. In order for the
foreign company to be continued in the BVI, the new Act requires that
the laws of the foreign country permit the migration of the company.
Under the IBC Act continuation was allowed even if the laws of the
foreign company did not permit the migration of the company. The result
was that the company continued to be governed under the laws of both the
BVI and the foreign jurisdiction. The new Act ensures that in order to
be accepted onto the BVI Register of Companies, the company’s existence
under the foreign country’s laws must cease.
A copy of the new Act
is available on this website.
If you have questions regarding any aspect of the new legislation, its
transitional provisions and what action you need to take with regard to
an existing company, please contact
Chris Riser or Justin
Schneider.
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