As a leading offshore financial center and in keeping with its constant drive toward the development and implementation of robust, modern and progressive corporate products, the British Virgin Islands (BVI) has recently introduced the Micro Business Companies Act (the “MBC Act”) – bespoke and innovative legislation designed specifically toward developing and supporting the ever burgeoning micro/ small business market.
By broad definition, micro businesses are typically characterized as being smaller style unsophisticated, non-financial sector corporate entities or structures usually having one owner and perhaps a handful of employees. Annual turnover, shareholder movement and asset base are generally of a limited or modest nature. Accordingly, many such micro-businesses have little or even no need for the often complicated and unnecessary constitutional and regulatory requirements which one may ordinarily encounter with standard or generic style corporate structures.
Enter the MBC – a user friendly, cost effective corporate product specifically designed to provide micro-businesses, entrepreneurs and sole traders alike with the freedom and scope to conduct their affairs in a manner which promotes growth without the burden of prohibitive costs and unnecessary statutory constraints.
Similar to entities incorporated under the primary BVI companies legislation, the BVI Business Companies Act or “BC Act”, companies incorporated under the MBC Act (termed as “MBCs”) are generally given a broad remit in terms of capacity and powers to carry on their business activities subject to the following restrictions:
- The MBC has no capacity to carry on any business that is regulated under any financial services legislation;
- Annual turnover should not exceed US$2,000,000 and have no more than 10 employees; or
- Gross asset value should not exceed US$2,000,000 and have no more than 10 employees.
Where the above limits are exceeded, the MBC will need to convert into a full business company or “BC” as if it was incorporated under the BC Act.
In order to level the playing field and mitigate the varying scope of fees which registered agent/ registered office providers (the “RA”) may charge for the incorporation, registration and maintenance of BC incorporated entities, the MBC Act directs that the BVI regulator may prescribe the fees which a prospective RA is permitted to levy and in turn, advertise for the incorporation and registration of an MBC.
MBCs are permitted to issue no more than six shares in total consisting of one “principal” share and a maximum of five “investor” or “participant” shares. In addition to full statutory dividend and distribution rights, the principal share confers on the holder the express right and unilateral authority to act on behalf of the MBC thus allowing the principal full independence to negotiate and agree transactions on behalf of the MBC (with no requirement to pass formal director style resolutions/approvals). The principal share is transferrable in nature; however, may not be encumbered under any form of security interest, held on trust/on a nominee basis or jointly held.
The dividend and distribution rights attributable to participant shares are generally more flexible in nature and are required to be set out in the constitution or “Charter” of the MBC. They are however, non-transferrable and carry no voting rights. Similarly with the principal share, participant shares (or any right there under) may not be encumbered under any form of security.
As part of the incorporation process, the RA of an MBC is required to file a copy of the MBC’s Charter with the Registry of Corporate Affairs in the BVI (the “Registry”) which, among other administrative requirements, must include details of the following:
- the specific business purpose of the MBC (which unlike BC Companies, are permitted to have a wide/open scale object clause) and the country in which the primary place of business operation of the MBC is located; and
- the name and nationality of the principal and that the principal is the registered holder of the principal share.
Post-incorporation, the MBC must file (via its RA) an annual return with the Registry confirming that its initial incorporation details are indeed still correct (i.e. as they relate to business scope and principal details) and further, that it still meets the statutory threshold requirements as they relate to employee numbers as well as turnover and asset values. Failure to file the annual return will result in the MBC being struck off the register of companies and dissolved after a period of one year. That said, the company may be restored provided all outstanding filings are completed and penalties paid.
With the introduction of the MBC Act, the BVI has further demonstrated its forward thinking commitment in developing and progressing cross-border trade by affording entrepreneurs, sole traders and small/micro business alike the opportunity to grow their enterprises on a global yet scalable basis.
An original version of this article was published by Asian Legal Business, October 2018.