Why choose a Jersey company?
How is the Jersey holding company introduced?
Establishing and marketing the new Jersey company
Jersey companies continue to be popular as listing vehicles, with more international businesses likely to choose a Jersey holding company to lead them to market in future.
Prior to October 2009, Jersey companies were already listed around the world, from New York (NASDAQ) to London (Main Market, AIM and PLUS), Amsterdam (Euronext), Toronto (TSX and TSXV) and Stockholm (Stockholmborsen). In October 2009 Jersey was approved as an acceptable overseas jurisdiction by the Hong Kong Stock Exchange, thus paving the way for Jersey companies to float on the Hong Kong Exchange. As a result, businesses can now access one of the world's largest financial centres and one of the most successful exchanges using a Jersey incorporated vehicle.
Jersey listed companies operate in a wide variety of sectors, including commodities, energy, mining, pharmaceuticals, media, real estate, support services, construction and materials, finance and investment. Their businesses are typically international, and their names are often widely known.
Jersey has long enjoyed an outstanding international reputation, offering investors the comfort of recognised reliability, substance and appropriate regulation.
For many years the island has been subject to the Organisation for Economic Cooperation and Development (OECD) Convention and therefore an OECD territory issuer. In April 2009 Jersey was designated from the outset by the OECD as a 'white-listed' jurisdiction meeting agreed international tax standards for information exchange and cooperation.
In addition, Jersey received one of the most favourable reports of all jurisdictions when the International Monetary Fund (IMF) published its report in September 2009 on the island's anti-money laundering and countering of financial terrorism regime. The IMF report showed that Jersey complies with all of the core principles for effective banking supervision and complies with 44 of the 49 general FATF recommendations (the highest ever recorded by the IMF and compared with, for example, 36 for the United Kingdom and 33 for Switzerland).
This standard of excellence is coupled with years of stability from an economic, political and financial point of view and the presence of highly experienced professionals in the island - the finance industry represents 14% of Jersey's population. Jersey has a global reputation as a first-class international finance centre with a proven track record for attracting investment from around the world.
Many businesses with an international reach can derive advantage from their holding company being incorporated, managed and controlled in a tax-neutral jurisdiction such as Jersey. As a consequence, investors in Jersey companies will gain a similar advantage. In Jersey there is:
- no corporation tax, capital gains tax or capital transfer tax;
- no requirement for a Jersey company to make any withholding or deduction on account of Jersey tax in respect of dividend or interest payments; and
- no stamp duty or similar taxes payable on the issue or transfer of a Jersey company's shares.
In addition, no UK stamp duty should arise on the transfer of shares in a Jersey company listed on a London Stock Exchange, provided that the company's register of members is maintained in Jersey.
The general rate of Jersey corporate income tax payable by companies that are tax resident in the island is 0%. Moreover, a Jersey company may elect to be non-resident in Jersey for tax purposes - and therefore exclusively tax resident elsewhere - if:
- its business is managed and controlled in a jurisdiction other than Jersey;
- it is tax resident in that jurisdiction; and
- the highest rate of corporate income tax in that jurisdiction is 20% or higher.
Consequently, companies formed as listing vehicles can expect to pay no income tax in Jersey, irrespective of whether they are tax resident in the island.
As well as offering a potentially favourable tax environment, Jersey's corporate laws appeal to businesses and investors alike. This is principally because:
- they are familiar - Jersey's principal corporate statute, the Companies (Jersey) Law 1991 (as amended), is to a large extent modelled on, and uses many of the same concepts as, the English Companies Act; and
- they are flexible - the Companies Law, while robust, offers a degree of flexibility not afforded by English law in certain key aspects.
Some examples of this familiarity and flexibility are considered below.
A Jersey company's constitution is similar to that of an English company and the overall form and content of its memorandum and articles of association will therefore be familiar to investors and will typically provide equivalent rights and protections. Nevertheless, the flexibility of the Companies Law allows any necessary changes to be made to the constitutional documents of a Jersey company to accommodate investor expectations or to satisfy the listing rules of a particular stock exchange.
There are no statutory pre-emption rights under Jersey law, but pre-emption rights on the issue of shares are generally included in the articles of a Jersey listing vehicle where required by the relevant listing rules in order to enhance investor protection.
Although there are no statutory disclosure and transparency provisions under Jersey law requiring shareholders to disclose interests in shares, it is now common to build provisions into the Jersey company's articles to reflect the requirements of the relevant stock exchange in this area.
The UK Code on Takeovers and Mergers applies to Jersey companies that are listed on London's Main Market and to other Jersey public companies that are centrally managed and controlled in Jersey. For those Jersey public companies to which the Takeover Code does not apply, it is usual (and arguably best practice) to include provisions in the articles prohibiting or restricting the acquisition of shares in the circumstances envisaged by the code and giving the directors wide powers (commensurate as far as possible with those vested in the takeover panel) to deal with a breach of any such prohibition or restriction.
Jersey companies (including public companies) can make a distribution out of any source other than the nominal capital account or capital redemption reserve, provided that the company can carry on its business and discharge its liabilities as they fall due for 12 months after the distribution. The ability for Jersey companies to distribute from a wide range of sources in this way may be an advantage over other companies seeking to maintain a consistent dividend policy, including English public companies incorporated elsewhere, which must have qualifying profits and satisfy additional capital maintenance requirements in order to make a distribution.
Repurchase of shares
Similarly, a Jersey public company's shares may be repurchased from any source, provided that a cash-flow solvency test is met. This gives Jersey listed companies an edge over their counterparts elsewhere where the procedure allowing a company to purchase its own shares out of capital may be available only to private companies.
How is the Jersey holding company introduced?
A Jersey holding company can be introduced into a group structure in a number of different ways.
Entrepreneurs setting up a business often intend to float in the months or years to come. In these cases they can incorporate a Jersey company from the start and, working with the client's tax advisers, put in place the most effective structure from the outset to meet the client's needs.
Existing businesses may wish to introduce a Jersey holding company into their current group structure. In these cases the new Jersey company is incorporated and then the existing group companies are reorganised so that the Jersey company is placed at the top of the structure. This can be done in a number of ways, of which simple share-for-share exchange or court-approved schemes of arrangement are the most common, depending on circumstances.
Migration or merger
If the laws of its country of incorporation permit, an existing foreign holding company may migrate to Jersey. In doing so, it ceases to be incorporated in its original country of incorporation and instead continues in existence as a registered Jersey company.
Similarly, new provisions introduced into Jersey company law earlier this year now allow a foreign holding company to merge with and continue as a Jersey company.
The migration and merger routes are alternative ways of restructuring by using a Jersey company to achieve results that may not be possible, or may be less attractive, using the existing non-Jersey holding company or through the introduction of a new holding company into the group structure.
Establishing and marketing the new Jersey company
Forming and maintaining the company
Incorporating a new Jersey holding company is straightforward and can be done on a same-day basis. Once incorporated, the company must maintain its registered office and register of members in Jersey, but need not have Jersey-resident directors.
In addition, electronic registrar services can be provided by local subsidiaries of UK-based registrars in Jersey to support the volume of trading in shares of a listed company. Jersey law specifically permits securities to be uncertificated and a Jersey company's shares are capable of being held in dematerialised form.
Marketing the company's shares
The shares in a Jersey holding company are generally capable of being marketed freely from a Jersey law perspective. The offer or admission document that is sent to prospective investors may amount to a prospectus for Jersey law purposes, and certain basic steps must be taken as a result. However, these are not considered onerous, particularly when other formal approvals may also be required in certain markets where the shares may be sold. They include the following:
- Limited Jersey-prescribed information and statements must be included in the offer or admission document (the original drafting will typically require few amendments);
- The prior written consent of the registrar of companies in Jersey must be obtained before the prospectus is circulated (this consent can be obtained in advance so as not to delay the overall process); and
- A copy of the final offer or admission document must be delivered to the registrar, signed on behalf of the directors of the issuing Jersey company.
Other marketing considerations may have an impact on how one structures a listed holding company. For example, some investors, particularly those in Europe and North America, require shares or securities to be issued by an issuer that is appropriately recognised or regulated (eg, an OECD territory issuer). Some require any investment to be held as shares rather than depositary receipts - Jersey companies can do both. Thus, with its high standards and wide recognition, Jersey as a jurisdiction can normally provide that crucial advantage to a successful offering.
For further information on this topic please contact Sara Johns at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email ([email protected]).