This memorandum has been prepared for the assistance of our clients in connection with companies in Guernsey and the provisions of the Companies (Guernsey) Law, 2008 (as amended) (the "Companies Law"). It is intended to provide only a summary of the main legal and general principles and is not intended to be comprehensive in scope. It is strongly recommended that you seek specific legal advice on such matters and we would be pleased to assist in this respect. A series of briefings on incorporating a Guernsey company and other specific aspects of Guernsey companies law have been produced by Ogier and are available on request or on our website, www.ogier.com
This memorandum has been prepared on the basis of law and practice in Guernsey as at 1 February 2012.
Guernsey is a leading financial centre of the highest reputation and standards. The jurisdiction is one of the most established, transparent and well-regulated international financial centres and was placed on the OECD G20 "white list" in 2009, which reflects high standards of international compliance and transparency. Guernsey’s continuing success as a financial centre is based on various factors, including economic and political stability, the independence it enjoys, an easily accessible justice system and an independent regulatory regime. Its low tax status, proximity to the financial markets of Europe and sophisticated financial industry infrastructure also contribute to its success.
Guernsey is also ideally suited geographically being within the European time zone and conveniently placed between the US and Asian time zones. It is serviced by regular flights to and from Gatwick Airport and other major UK airports and enjoys reliable high quality communication links.
Benefits of Using a Guernsey CompanySet out below are a number of the benefits of using a Guernsey company:
- Separate legal identity
- Members generally have limited liability
- Single member companies are permitted
- Ease of transfer of membership
- Different forms of companies available (e.g. protected cell companies, incorporated cell companies, companies limited by guarantee or unlimited liability companies)
- Guernsey companies can amalgamate with other Guernsey or non-Guernsey companies
- Guernsey companies can migrate out of Guernsey to other jurisdictions
- No authorised share capital Shares can be issued in various classes, including redeemable shares
- Most Guernsey companies, once due diligence has been completed and subject to approval of the Registrar of Companies (the "Registrar"), may be incorporated online within 24 hours and sooner if required (with payment of an additional fee).
Guernsey Companies Law
The Companies Law is a comprehensive modern statute governing all aspects of the regulation of the formation and operation of companies in Guernsey.
Types of Guernsey Companies
A Guernsey company may be incorporated as a non-cellular company or a cell company. A cell company may be either a protected cell company (which may create one or more cells for the purpose of segregating and protecting cellular and core assets but which do not have their own separate legal personality) or an incorporated cell company (which may create its own incorporated cells for the purpose of segregating and protecting the assets of each incorporated cell and the incorporated cell company and which have their own separate legal personality).
Cell companies require the consent of the Guernsey Financial Services Commission prior to incorporation. An incorporated cell of an incorporated cell company cannot be incorporated without a special resolution (i.e. a resolution passed by a 75% majority of those members entitled to vote on the resolution) of the incorporated cell company.
A Guernsey company may be incorporated with the liability of all or some of its members being:
- limited by shares - to the amount, if any, unpaid on the shares held by them
- limited by guarantee - to the amount which the member undertakes to contribute to the assets of the company in the event the company is wound up while he is a member or within a period of one year after he ceases to be a member
- unlimited - unlimited liability for the company's debts while they are members and for a period of one year after they cease to be members
- mixed - a combination of the above
The Companies Law provides mechanisms for converting companies formed as one type of company into another type of company.
Incorporation of a Guernsey Company
A separate briefing on incorporating a Guernsey company has been prepared and is available on our website www.ogier.com and on request.
There are compulsory components required as part of a company’s name which vary according to the type of company or the liability of the company. For example, protected cell companies are required to have "Protected Cell Company"', "PCC" or such other expression as may be approved in writing by the Guernsey Financial Services Commission in their name and a company limited by shares is required to have "Limited", "With limited liability", "Ltd.", "Avec responsabilité limitée", or "ARL" at the end of its name. There are exemptions from these requirements in limited circumstances.
Certain company names are prohibited. The chosen name must not have words in its name which refer to a company of a different type or liability (for example, a protected cell company may not have "ICC" in its name), a name which is the same as a name currently appearing on the Register of Companies ("Register") or that has been reserved with the Registrar or which is likely to be confused with some other person already established in Guernsey or a registered trade mark, or a name which gives a misleading indication of the company's activity. Nor can it have a name which would constitute a criminal offence or would be contrary to public policy or accepted principles of morality.
A company name may be reserved with the Registrar for a period of three months, during which time the name cannot be reserved by any other person or used in an application for incorporation by any other person (unless consent is given by the person who reserved that name).
A company may change its name by passing a special resolution authorising the name change. An application must be made to the Registrar and must be accompanied by the special resolution authorising the name change and a declaration of compliance (name change). The Registrar will publish the proposed name change and if the application is granted the Registrar will issue a certificate of change of name and the new name of the company will be registered on the Register.
Memorandum and Articles of Incorporation
The memorandum of incorporation sets forth the constitution of the company, identifying the company's name, that the company’s registered office is situated in Guernsey, the type of company and the liability of its members and, in the case of a company whose objects are restricted, those objects.
The articles of incorporation contain the regulations governing the internal management and procedures of the company and would include, among other things, details of the rights attaching to shares. Upon incorporation, the memorandum and articles of incorporation constitute a contract which binds the company and its shareholders. If bespoke articles of incorporation are not adopted, the standard articles prescribed pursuant to the Companies Law will apply.
The articles of incorporation may be amended by the shareholders of the Guernsey company by a special resolution. However, a provision of the memorandum of incorporation may only be amended in the manner and to the extent expressly provided under the Companies Law.
Issue of shares
Guernsey companies no longer have an authorised share capital.
In the case of companies with only one class of share, the directors may exercise any power of the company to issue shares of that class or grant rights to subscribe, except to the extent that they are prohibited from doing so by the company’s memorandum, articles or by an ordinary resolution (i.e. a resolution passed by a 50% majority of those shareholders entitled to vote on the resolution). In the case of companies with more than one share class, a particular issue of shares needs to be authorised, either by an authorisation in the company’s memorandum, articles or by an ordinary resolution. The authorisation may be given for a particular issue of shares or rights or generally, and may be conditional or unconditional.
The authorisation must state the maximum amount of shares that may be issued under it, and the date upon which the authorisation will expire. The expiry date must not be more than five years after the date when the authorisation is given. The authorisation may be renewed or revoked by a further ordinary resolution. Such renewal may only be for a further five years. An issue in breach of this authorisation requirement will be valid but a director who permits or purports to authorise a contravention of the authorisation requirement will be guilty of an offence.
This regime relating to issuing of shares is of central importance as directors who issue shares without authorisation will commit an offence. Companies and their directors will therefore need to be aware of existing authorisations to issue shares in the company and the five year period for renewal thereof by ordinary resolution, in order to avoid this problem.
In particular, we recommend that open ended investment funds, which issue shares on a regular basis, have regard to this issue and keep authorisation in place for the issue of shares.
The powers of a company to issue shares of any one or more classes must be set out in its memorandum and articles of incorporation and the company cannot issue shares if there is no such power of the company. If the memorandum and articles do not allow for the issue of a certain class of shares it is possible for the memorandum and articles of incorporation to be amended to provide for the issue of a new class of shares to suit the requirements of shareholders.
Consideration for the issue of shares may be in any form. Such consideration shall be transferred to an account of the company designated the "share capital account". Where the consideration is other than cash the fair value shall be designated in that account.
There is no requirement in the Companies Law to maintain a share premium account. It is, therefore, permissible to issue shares at a premium and for the premium to be transferred to the share capital account and used by a company without restriction. This gives a Guernsey company an advantage over companies in jurisdictions that impose restrictions on the use of a share premium, such as the United Kingdom.
The directors of the company have duties imposed on them in relation to the consideration for the shares being issued. The board of directors must:
- decide on the consideration and the terms on which the shares will be issued and resolve that in their opinion the consideration and terms of issue are fair and reasonable to the company and to all existing members;
- where shares are issued other than for cash, determine the reasonable present cash value of the consideration offered and resolve that in their opinion such consideration is not less than the amount to be credited to the share capital account in respect of the shares being issued;
- approve whether shares issued (but not fully paid up initially) may be credited as fully paid upon payment of the outstanding consideration; and
- approve a certificate (to be signed by one of their number) confirming in relation to each of the above circumstances specific information relating to the consideration for the shares to be issued.
It should be noted that the above requirements will not apply in the case of conversion of any security into shares or in the case of the exercise of any right to subscribe for shares. Similar requirements to those above will, however, apply where a company grants rights to subscribe for, or to convert any security into, shares in the company, whether for cash or other consideration.
It is permissible to issue shares at a discount or pay a commission in respect of the shares.
Alteration of Share Capital
A company may if, so authorised by its memorandum or articles, by ordinary resolution alter its memorandum in a variety of ways which affect the share capital of the company so as to allow it to consolidate or divide or sub-divide any part (or all) of its share capital, cancel shares which have not been taken up by any person and diminish the amount of its share capital or convert any of its shares to a different currency.
A cancellation of shares does not constitute a reduction of share capital.
A copy of every resolution effecting any of the above alterations must be delivered to the Registrar within 30 days of the date on which it was passed. Whilst failure to deliver the resolution does not invalidate the resolution itself it should be noted that it would constitute an offence on the part of the company.
Transfer of Shares
The shares of any shareholder in a company are transferable in the manner provided by the company’s memorandum and articles and there is no statutory right of pre-emption imposed by the Companies Law. There are very often restrictions detailed in the articles that need to be complied with in relation to a transfer.
Redemption of Shares
A company may redeem redeemable preference shares on such terms and in such manner as may be provided for in its memorandum or articles or the terms of issue of those shares. A company may not redeem shares if after the redemption it will have no members - it must retain at least one member. A redemption of shares will also be a distribution (see the section headed "Distributions and the Solvency Test" below). Redemption by open ended investment companies is subject to a less stringent solvency test.
Purchase of Own Shares
A company must acquire its own shares on such terms and in such manner as may be provided for in the memorandum or articles or the terms of issue of those shares. An off-market acquisition of shares requires a special resolution of the company approving a contract for such purchase. Under the Companies Law such purchase may be made by debiting any account representing shareholder funds. Further, for a market acquisition of the company’s own shares, only the authorisation of the memorandum or articles or, failing that, an ordinary resolution is required. It should be noted that the purchase by a company of its own shares will also be a distribution (see the section headed "Distributions and the Solvency Test" below). A company may not acquire a share if, as a result of the acquisition, the company would have no members.
Shares acquired by a company must be cancelled unless the company is authorised by its memorandum or articles or an ordinary resolution to hold up to 10% of the issued shares of the company as treasury shares. The company shall not exercise any voting rights attaching to treasury shares, make or (subject to limited exceptions) receive any dividend or distribution in respect of treasury shares.
Financial Assistance for the Acquisition of a Company’s Own Shares
Financial assistance directly or indirectly for the purpose of or in connection with the purchase of shares in the company is permitted but is treated as a distribution (see the section headed "Distributions and the Solvency Test" below).
If the company will be involved in the provision of banking, insurance, custodian, investment, fiduciary services, financial services or certain other sensitive activities, detailed information regarding the proposed activities will need to be disclosed to the Guernsey Financial Services Commission and an application for the necessary licence will also be required.
A Guernsey company must at all times have a registered office in Guernsey. An incorporated cell shall have the same registered office as its incorporated cell company.
A company’s name must be displayed in a conspicuous place and in easily legible letters at its registered office and at any other place at which its business is ordinarily carried on. The registered office functions as an official address for a company where statutory communications can be sent or documents served. A company’s particulars (its name, registration number, address of its registered office and the fact that it is limited by guarantee, if applicable) must appear on all its order forms, formal business letters and on its website (where applicable). This applies equally to correspondence in electronic form.
A company may change its registered office by giving notice to the Registrar. The change takes effect upon the notice being registered by the Registrar, but for a period of 14 days (beginning with the date it is registered) a person may validly serve a document on the company at its previous registered office. Special provisions in relation to a change in registered office apply to incorporated cell companies and non-cellular companies being converted and transferred.
A company may, but need not, have one or more common seals. A common seal may be used in any jurisdiction unless the articles of the company provide to the contrary. The name of the company shall be engraved in legible characters on its common seal.
Guernsey companies must have at least one director. There is no requirement under the Companies Law for a director to be resident in Guernsey. However, a director must give his written consent to the appointment as a director and must declare that he is not ineligible pursuant to the Companies Law to be a director. A register of directors which is open to inspection by the shareholders must be maintained at the registered office. Directors can be individuals or corporate directors.
A separate briefing on the duties and responsibilities of directors of a Guernsey company has been prepared and is available on our website www.ogier.com and on request.
The Companies Law provides that a company may, but does not need to, have a secretary. The secretary of an incorporated cell company must also act as secretary of each of its incorporated cells.
A person is not permitted to act as a secretary if he or she is (i) a minor or (ii) disqualified from being a director under either the Companies Law, the Companies (Guernsey) Law, 1994 (as amended) or the laws of any jurisdiction outside the Bailiwick of Guernsey. An appointment made in contravention of the Companies Law is void, but a person who purports to act as a secretary may still incur liability for doing so.
A secretary is required by the Companies Law to take reasonable steps to ensure:
that all registers and indexes are maintained in accordance with the provisions of the Companies Law;
that all notices and documents required to be filed or served upon the Registrar or other persons are duly so filed or served;
that all resolutions, records (other than records of beneficial owners) and minutes of the company are properly kept;
- that copies of the memorandum and articles are kept fully up to date; and
- that the board of directors is aware of any obligations imposed by:
- the memorandum and articles, and
- the rules of any stock exchange on which the company is listed.
A person may hold office as a director and a secretary at the same time and, where a company is required to do something by a director and the secretary, then it is permissible for the same person to carry out the act acting as both director and secretary.
If a company has a secretary, it is obliged to keep a register of secretaries at its registered office.
- Every Guernsey company is required to have a resident agent except:
- companies which are listed on a recognised stock exchange and their subsidiaries
- open-ended and closed ended investment companies and their subsidiaries
- companies which are licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (as amended); Insurance Business (Bailiwick of Guernsey) Law, 2002 (as amended); Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002 (as amended); Banking Supervision (Bailiwick of Guernsey) Law, 1994 (as amended) or the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2000 (as amended) (the "Fiduciary Law") ("Supervised Companies").
It is the responsibility of the resident agent to ascertain and keep a record of the ultimate beneficial owners of the company (who have an interest of 10% or more).
In addition, the application for incorporation of the company must specify the proposed resident agent of the company. A resident agent must be either:
- a natural person resident in Guernsey, who is a director of the company; or
- a corporate services provider (being a person who holds a full fiduciary licence under the Fiduciary Law).
Operation of a Guernsey Company
Subject to the memorandum and articles of incorporation and the Companies Law, the directors have all the powers necessary for managing, and for directing and supervising the management of, the business and affairs of the company. The directors owe a fiduciary duty to the company to act honestly and in good faith with a view to the best interests of the company. Directors have ostensible authority to bind the company to contractual obligations but are required to disclose to the company any interest in a transaction which may conflict with the interests of the company. Failure to do so will render the transaction voidable at the instance of the company or a shareholder.
Prior to 31 January in each calendar year, every Guernsey company incorporated before 1 December in the previous calendar year must complete an annual validation containing information (as detailed in the Companies Law) current on 31 December in that previous year.
The annual validation must be delivered to the Registrar along with a declaration of compliance signed by a director or the secretary of the company confirming that all of the requirements of the Companies Law in respect of the annual validation have been fulfilled.
Every Guernsey company must keep accounting records for each financial year which are sufficient to show and explain its transactions and are such as to (i) disclose with reasonable accuracy, at any time, the financial position of the company; and (ii) enable the directors to ensure that any accounts are prepared properly. The accounts must include a profit and loss account and balance sheet and must (i) give a true and fair view and (ii) be prepared in accordance with generally accepted accounting principles and comply with any relevant enactment for the time being in force. Such accounting records must be kept at the company’s registered office (or such other place as the directors think fit) for six years. The accounts are required to be approved by the board of directors and signed on behalf of the board by at least one director. There is no requirement under the Companies Law to file accounts with the Registrar or any public registry or body.
Every Guernsey company must have its accounts audited by a qualified auditor unless it is exempt under the provisions of the Companies Law or if the members of the company have passed a waiver resolution (i.e. a resolution passed by a 90% majority of those members entitled to vote and voting on the resolution) waiving the requirement for the company to be audited for a particular year. It should be noted that such waiver only has effect in respect of a company’s obligations under the Companies Law and does not affect any other obligations of a company to have its accounts audited (for example any regulatory obligations it may have). Regulations have been made preventing certain companies from adopting the audit exemption.
Reports to Members
Every Guernsey company must send its accounts, directors' report and auditors'report (where required) to each member of the company within 12 months after the end of the financial year to which they relate. These documents must also be laid before all annual general meetings of the company.
Annual General Meeting
Every Guernsey company must hold an annual general meeting within 18 months beginning on the date of incorporation and at least once in every calendar year thereafter with no more than 15 months elapsing between each meeting unless the members of the company have passed a waiver resolution waiving the requirement for the company to have a general meeting for a particular year or years or for an indefinite period.
Distributions and the Solvency Test
There is no obligation under the Companies Law to maintain any specific amount of share capital and a Guernsey company is free to distribute money and property provided that the directors are satisfied that immediately after making that distribution the company will satisfy a statutory solvency test being:
- a cash flow test - the company must be able to pay its debts as they become due; and
- a balance sheet test - the value of the company's assets must be greater than the value of its liabilities.
Supervised Companies must also satisfy additional requirements arising under the applicable regulatory legislation.
In determining whether a company's assets are greater than its liabilities the directors must have regard to the most recent accounts of the company and all other circumstances which the directors know or ought to know affect (or may affect) the value of the company's assets and its liabilities. The directors may rely on valuations of assets or estimates of liabilities that are reasonable in the circumstances.
A "distribution" for the purposes of the Companies Law is the the direct or indirect transfer of money or property other than the company’s own shares to or for the benefit of a member or the incurring of a debt to or for the benefit of a member in respect of the members interests whether by means of a purchase of property, the redemption of or other acquisition of shares, a distribution of indebtedness or by some other means. A dividend is any distribution (whether in the form of money or other property) other than a distribution by way of:
- an issue of bonus shares;
- a redemption or acquisition of any of the company's shares;
- financial assistance for the acquisition of the company's own shares; or
- a reduction of share capital; or
- a distribution of assets to members for the purposes of its winding up or pursuant to an administration or receivership order (or in the case of a cell of a protected cell company a distribution of assets to members for the purposes of termination of the cell).
The directors of a company may authorise a distribution if such distribution satisfies any relevant requirement in the company’s memorandum and articles and if they are satisfied on reasonable grounds that immediately after the distribution the company will satisfy the solvency test. The directors must certify their opinion in writing and state the grounds for it and the certificate must be signed on their behalf by at least one of them. The one exception to this is that distributions by way of the redemption of shares made by open-ended investment companies do not require director certification (although the solvency test must still be satisfied).
If after the distribution is authorised and before it is paid, the board ceases to be satisfied on reasonable grounds that the company would satisfy the solvency test immediately after the distribution was made, the distribution is deemed not to have been authorised.
If it transpires that a distribution was made to a member at a time when the company did not immediately after distribution satisfy the solvency test the distribution may be recovered from such member except to the extent that the member received the distribution in good faith without knowledge of the company’s failure to satisfy the solvency test, the member has altered his position in reliance on the validity of the distribution and it would be unfair to require payment in full or at all.
To the extent that any distribution is not recoverable from members, directors may be personally liable to the company if they have voted in favour of a distribution in circumstances where the correct procedures relating to the distribution were not followed or when there were no reasonable grounds for believing that the company would satisfy the solvency test at the relevant time.
In general, a Guernsey incorporated company is subject to Guernsey income tax at the rate of 0% unless it is involved in banking activities or is a resident utility company. There is no capital gains tax, capital transfer tax, corporation tax, profits tax or withholding tax payable by or applicable to a company in Guernsey. No stamp duty is payable on the transfer of shares in a Guernsey company. We recommend that you take specific taxation advice in all relevant jurisdictions.