The BVI Business Companies Act, 2004 (as amended, the Act), is the sole corporate statute in the British Virgin Islands (“BVI”) and regulates all BVI companies. The old International Business Companies Act, 1984 (the IBC Act) was repealed on 1 January 2007.
Certain provisions from the IBC Act are replicated in a schedule to the Act, and continue to apply to some older companies originally incorporated under the IBC Act and automatically re-registered under the Act on 1 January 2007 unless they have taken certain steps to disapply those provisions. Those provisions primarily relate to the concepts of “capital” and “surplus” and the rules applicable to redemption of shares and payment of dividends.
- RANGE OF CORPORATE VEHICLES
Seven different types of company can now be incorporated under the Act:
- companies limited by shares;
- companies limited by guarantee not authorised to issue shares;
- companies limited by guarantee authorised to issue shares;
- unlimited companies authorised to issue shares;
- unlimited companies not authorised to issue shares;
- restricted purposes companies; and
- segregated portfolio companies.
Restricted purposes companies are companies limited by shares but with restricted objects or purposes and whose certificate of incorporation will state that they are restricted purposes companies. Their primary use is in structured finance and securitisation transactions. Segregated portfolio companies (SPCs) are companies limited by shares, and they may only be incorporated if written approval of the Financial Services Commission (FSC) has been obtained. It should be noted that mutual funds may also be registered as SPCs pursuant to the Segregated Portfolio Companies Regulations, 2005.
The Financial Services (Exemption) Regulations, 2007 (Statutory Instrument No. 50 of 2007) have introduced provisions for the incorporation of private trust companies under the Act which are exempt from licensing requirements under the Banks and Trust Companies Act, 1990 (No. 9 of 1990).
- COMPANY NAMES
All companies are required to use a corporate suffix, but the different types of companies can have different name endings. Unlimited companies must end with either “Unlimited” or “Unltd”. Restricted purposes companies must have a name that ends with the phrase “(SPV) Limited” or “(SPV) Ltd”, and SPCs must have either “Segregated Portfolio Company”, or its abbreviation “SPC”, in the name immediately before one of the endings specified for limited companies. Limited companies (including companies limited by guarantee) must end their name with either “Limited”, “Corporation”, “Incorporated”, “Societe Anonyme”, “Sociedad Anonima”, and their respective abbreviations such as “Ltd”, “Corp”, “Inc” and “S.A.” The name of a limited company that is a private trust company must end with the designation “(PTC)” placed immediately before one of the required endings.
If required, the company number can be used as a name in the form “BVI Company Number 1234567 Limited”. A company can also have an additional name in foreign characters if approved by the Registrar. These features have proved to be very useful for incorporation agents, particularly in Asia.
- INCORPORATION PROCEDURES
An application for incorporation can only be made by a licensed registered agent. To incorporate a company the memorandum of association (memorandum) and articles of association (articles) signed by the registered agent must be filed with the Registrar of Corporate Affairs (the Registrar). For segregated portfolio companies, the written approval from the FSC must also be filed.
If the Registrar is satisfied that all the requirements of the Act have been met, the Registrar will register the documents, allot a unique number to the company, and issue a certificate of incorporation. The company is incorporated from the date specified in the certificate.
- MEMORANDUM AND ARTICLES, NO OBJECTS CLAUSE OR AUTHORISED SHARE CAPITAL
The corporate constitution of the company are its memorandum and articles and, together with the Act, they regulate the relationship between the company, its members and its directors. The Act provides that the memorandum and articles are binding as between the company and each member and between the members themselves and thus in effect constitute a “statutory contract” between them.
Besides the name and type of company, its registered office, and the name and address of its first registered agent, there are certain matters that must be stated for the different types of companies, for example, (i) companies authorised to issue shares must state the maximum number of shares that can be issued or that the company is authorised to issue an unlimited number of shares (it should be noted that there is no longer a concept of authorised share capital); (ii) companies limited by guarantee must specify the amount which a guarantee member must contribute to the assets on liquidation; (iii) restricted purposes companies must state that they are such companies; and (iv) SPCs must state that they are segregated portfolio companies. Beyond the specified compulsory matters, the Act gives great flexibility on what may be included in either the memorandum or articles.
There is no requirement to state the objects or purposes in the memorandum. Whilst there is nothing to prevent a company from stating its objects or purposes (and in practice many companies still do so), it is not required to do so. The only exceptions to this rule are a restricted purposes company which must state in its memorandum the purposes for which it is incorporated and a private trust company which must state in its memorandum that it is a private trust company.
- ALTERATION TO THE MEMORANDUM OR ARTICLES
The memorandum and articles may be amended by the members, or by the directors if authorised by the memorandum but subject to certain restrictions on the directors’ ability to amend (for example, they cannot amend to restrict the rights of members to amend the memorandum or articles). In general, a majority of those entitled to vote and voting is needed for an amendment.
The right of amendment can be restricted with the Act allowing provisions to be entrenched so that they cannot be amended, or requiring a specified majority greater than 50% to amend, or requiring that they may only be amended if certain conditions are met. However, this does not apply to any provision in the memorandum restricting the purposes of a company that is not a restricted purposes company.
The company must file either a notice of amendment in the approved form, or a restated memorandum or articles incorporating the amendment made, with the Registrar. The amendments take effect from when they are registered by the Registrar, but there is power to apply to the court for an order that the amendments take effect from another date not earlier than the date of the resolution to amend.
- CORPORATE CAPACITY AND ULTRA VIRES
The Act abrogates the ultra vires doctrine by:
- not requiring companies to specify their objects or purposes (except restricted purposes companies);
- providing that a company has, irrespective of corporate benefit, full capacity to carry on any business or activity, do any act or enter into any transaction; and
- for those purposes a company has full rights, powers and privileges. However, this latter provision is subject to the rest of the Act, any other statute, and the company’s memorandum and articles.
The concept of constructive notice of documents (including the memorandum and articles) filed with the Registry is abolished by the Act, except in relation to particulars of charges registered in the Register of Registered of Charges and with respect to documents relating to a restricted purposes company.
A member is a person whose name is entered as such on the register of members of a company.
In general, the memorandum and articles will define the rights and liabilities of members. The Act specifies that in the absence of any other provisions each share will carry the following rights: (i) the right to one vote, (ii) the right to an equal share of any dividend, and (iii) the right to an equal share in the distribution of surplus assets. These rights may be negated, modified or added to where expressly authorised by the memorandum.
In the case of limited liability companies members are not liable for the debts and obligations of the company. The shareholders of a limited liability company are only liable for the amount unpaid on their shares and as may be specified in the memorandum. Guarantee members of a company limited by guarantee are only liable to contribute to the assets of the company on liquidation in the amount stated in the memorandum, and for any other liability provided in the memorandum or articles. Unlimited members have unlimited liability for the debts and obligations of the company.
- MEMBERS’ REMEDIES
Minority shareholders have a statutory right to bring a derivative action in exceptional circumstances. These circumstances would include where a company or a director of the company engages in, or proposes to engage in, conduct that contravenes the Act or the memorandum or articles of the company.
A member must first obtain the leave of the Court and the Court must take into account, and be satisfied as to, a number of matters in determining whether to grant leave. If leave is granted the Court may make an order directing the company or director to comply with, or restraining the company or director from engaging in, conduct that contravenes the Act or the memorandum or articles.
Whilst it is still possible to appoint a liquidator on the “just and equitable” ground, there are limitations to this remedy given the fact appointment of a liquidator is a fairly drastic procedure that could, in itself, seriously damage the company. The Act now permits a member who feels the affairs of the company have been or are likely to be conducted in a manner that is likely to be oppressive, unfairly discriminatory or unfairly prejudicial to him as a member, to apply to the Court for an order. The Court may, if it considers it just and equitable to do so, make one or more orders including appointment of a liquidator or receiver, requiring the company or another person to acquire the shares of the applicant, requiring the company or another person to pay compensation to the applicant, regulating the future conduct of the affairs of the company or setting aside any decision or action taken by the company or its directors in breach of the Act or the memorandum or articles of the company.
- MEMBERS’ RESOLUTIONS
Under the Act a majority in excess of 50% (or such higher majority as specified in the memorandum or articles) of the votes of those entitled to vote and voting on the resolution is sufficient for passing a resolution at a meeting or as a written resolution. A guarantee member and a member of an unlimited company without shares is entitled to one vote unless the memorandum and articles provide otherwise, and a shareholder is entitled to the votes attaching to the shares held by him.
- CLASS RIGHTS AND PRE-EMPTION RIGHTS
A company may create various of classes of shares, but the rights, privileges, restrictions and conditions attaching to each class must be specified in the memorandum.
The Act contains pre-emption provisions upon the issuance of shares which the company can “opt into” (i.e. they only apply if the memorandum specifically states that they are to apply), although in practice companies rarely do so.
A company must have at least one director, but this requirement does not apply during the period between the incorporation of the company and the appointment of first directors. A company must keep a register of directors. The business and affairs of a company shall be managed by, or under the direction or supervision of, the directors, but subject to any modifications or limitations in the memorandum and articles.
Directors can delegate most of their powers to committees of directors but certain important powers cannot be delegated to committees, e.g. the power to amend the memorandum or articles, the general power to delegate to committees (but certain powers can be sub-delegated if authorised by the directors), the power to appoint and remove agents, and the power to appoint and remove directors. The directors remain responsible for the exercise of the power by the committee.
A director’s equitable duties of acting honestly, in good faith and in what he believes to be in the best interests of the company have a statutory footing, as is his common law duty of care and skill. The Act also allows a director of a subsidiary to act in the best interests of its holding company even though it may not be in the best interests of the company, provided he is expressly permitted to do so by the memorandum or articles, and has the prior agreement of all shareholders where the company is not a wholly owned subsidiary. In a similar manner, the Act allows a director of a company that is carrying out a joint venture between the shareholders to act in the best interests of a shareholder or shareholders, even though it may not be in the best interest of the company provided he is expressly permitted to do so by the memorandum and articles. He is also under a statutory duty to exercise his powers as a director for a proper purpose and he must not act in a manner that contravenes the Act or the memorandum or articles.
A director is required to disclose to the board any interest in a transaction to be entered into by the company. A transaction entered into by a company in respect of which a director is interested is voidable by the company unless:
- the directors interest was disclosed to the board;
- disclosure is not required;
- the material facts of the director’s interest in the transaction are known by the members and the transaction is approved by them; or
- if the company received fair value for the transaction.
Nevertheless, he may, subject to the memorandum and articles, vote on the transaction or attend a meeting relating to it and be counted for the purposes of a quorum.
These requirements are intended to be in addition to the common law duties of a director, and not a substitute for them.
- APPOINTMENT AND REMOVAL OF DIRECTORS
The registered agent must appoint the first director(s) within six months of incorporation. Subsequent directors can be appointed by resolution of members (unless the memorandum or articles provide otherwise), or by the directors if permitted by the memorandum or articles, for such term as may be specified in the resolutions appointing them. A person cannot be appointed to act as a director unless they have consented in writing to be a director.
Where an individual is the sole member and sole director of a company, that sole member/director may by written instrument nominate a person not disqualified from being a director as a reserve director to act in place of the sole director upon his death. The nomination of the reserve director ceases to have effect if the reserve director resigns, the sole member/director revokes the nomination before the death of the sole member/director or the sole member/director ceases to be the sole member/director other than by reason of death.
A director may resign by giving written notice of his resignation. Subject to the memorandum and articles of a company, a director may be removed from office by a resolution of members. A director may also be removed by the directors where expressly permitted by the memorandum or articles.
Since there is no concept of authorised share capital, or indeed of share capital, the Act does not contain any specific provisions relating to capital. Instead, these matters are now part of the provisions relating to distributions and the purchase by the company of its own shares.
The Act retains the distinction between registered shares and bearer shares. In the case of registered shares, title is prima facie evidenced by entry on the register of members that must be kept by the company.
Shares with or without par value may be issued at the discretion of the directors on the terms and consideration determined by them in accordance with the memorandum and articles. Shares can be issued for money or consideration in kind but such consideration it must not be less than the par value if the share in question is a par value share. A company may in its memorandum or the terms on which shares are issued specify provisions for the forfeiture of any shares which are not fully paid for on issue. Further, subject to the memorandum or articles, the directors may refuse or delay the registration of a transfer of shares if the holder has failed to pay any amount due in respect of them. Companies also have a statutory power to give financial assistance in connection with the acquisition of their own shares.
As noted above, the Act sets out the default rights that a share confers on its holder, but these can be modified, varied or excluded. A company may issue redeemable shares, preference shares, shares with no or only limited rights to distribution, shares with no or limited or conditional voting rights. It can, subject to the memorandum and articles, also issue bonus shares, partly paid shares and nil paid shares. Subject to its memorandum and articles, a company may issue fractional shares. It may also hold treasury shares (i.e. where the company has acquired its own shares but not cancelled them) if not prohibited by its memorandum or articles.
Transfer of registered shares is by a written instrument of transfer signed by the transferor and containing the name and address of the transferee. The instrument must be sent to the company for registration and the company must enter the transferee’s name in the register of members. The transfer is effective when the name is so entered. However, the directors may resolve to refuse or delay registration but only if permitted by the Act or the memorandum or articles.
- ACQUISITION BY THE COMPANY OF ITS OWN SHARES
A company is allowed to purchase, redeem or otherwise acquire its own shares in accordance with two distinct regimes:
- under a statutory regime pursuant to sections 60, 61 and 62 of the Act; or
- in accordance with its own memorandum or articles (in which case the provisions of sections 60 to 62 do not apply to the extent that they are modified, negated or inconsistent with the provisions in the memorandum or articles).
Most memorandum and articles provide for their own redemption procedure and therefore do not apply sections 60 to 62.
The acquisition of its own shares, whether under the statutory regime or in accordance with its own memorandum or articles, is treated as a distribution to members (except that an acquisition is deemed not to be a distribution where shares are redeemed pursuant to a right of a shareholder to have his shares redeemed). This places an important restriction on the company: the directors must be satisfied on reasonable grounds that the company will satisfy the solvency test for distributions immediately after the acquisition, i.e. that the value of its assets will exceed its liabilities and it will be able to pay its debts as they fall due, and a resolution authorising the distribution must contain such a statement. Therefore, there is no need to satisfy the solvency test where the acquisition is pursuant to a shareholder’s right whether under section 62, under the memorandum or articles or pursuant to the rights of dissenters under section 179.
- DISTRIBUTION AND DIVIDENDS
Distributions of the company’s money or assets can only be made if the directors are satisfied on reasonable grounds that the company will, immediately after the distribution, satisfy the solvency test (i.e. that the value of its assets will exceed its liabilities and it will be able to pay its debts as they fall due). These provisions are not confined to dividends but relate to any “distribution” to a member. The definition of distribution is wide, encompassing the direct or indirect transfer of an asset, 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, and includes the purchase of an asset, the redemption or other acquisition of shares, and dividends.
- REGISTRATION OF CHARGES
A company must keep a private register of charges at its registered office or at the office of its registered agent. In addition, particulars of the charge may also be registered in the public register of registered charges maintained by the Registrar in respect of each company. Priority under the Act is determined by the date of registration in the register of registered charges and a registered charge takes priority over an unregistered charge, as well as over a charge subsequently registered. Either the company or the chargee can apply to the Registrar for registration in the public register, and there is no time limit for making such an application. Registration is not mandatory, and failure to register does not affect the charge’s validity or enforceability even as against a liquidator or other secured creditors. A more detailed guide on registration of charges is available on our website.
- REGISTERED AGENTS, RECORDS AND SEALS
A company must at all times have a registered agent in the BVI. Failure to do so can result in the company being struck off the register.
The company must keep certain documents with the registered agent:
- a copy of the memorandum and articles;
- the register of members (or a copy of it);
- the register of directors (or a copy of it); and
- copies of all notices and other documents filed by it with the Registrar in the previous 10 years.
If the company provides the registered agent with copies of the register of members or directors rather than originals, then it must notify the registered agent in writing within 15 days of any changes to those registers, and provide the registered agent with a record of the physical address where the originals are kept. Minutes of meetings and resolutions of members, classes of members, directors and committees of directors may be kept with the registered agent or at some other place in which event the registered agent must be given a written record of the physical address where they are kept.
A company is required to have a seal an imprint of which must be kept at the office of the registered agent. However, an instrument is validly executed as a deed by a company even if it is only signed by a director or other agent provided that it is expressed to be a deed or expressed to be executed as a deed, or otherwise makes clear that it is intended to be a deed, even if the seal is not affixed.
- MERGER, CONSOLIDATION, SALE OF ASSETS, FORCED REDEMPTIONS, ARRANGEMENTS AND DISSENTERS
Part IX of the Act regulates merger and consolidation of multiple BVI companies (i.e. the consolidation of two or more companies into a new company, or merger between parent and subsidiary companies) or merger or consolidation with foreign companies. It also regulates sale of more than 50% in value of the assets of the company otherwise than in the ordinary course of business; forced redemption of minority shares; and two types of court approved schemes of arrangement.
A foreign company may continue (i.e. redomicile to the BVI) as a company incorporated under the Act but only if the laws under which it is registered authorise it to continue in another jurisdiction. However, in certain circumstances a foreign company will be prohibited from continuing into the BVI, for example (i) if it is in liquidation, (ii) an application has been made in another jurisdiction for its liquidation, (iii) a receiver or manager has been appointed in relation to any of its assets, or (iv) it has entered into an arrangement with its creditors.
Subject to its memorandum or articles, a company may continue under the laws of another jurisdiction if the Registrar would issue a certificate of good standing in respect of it, but it does not cease to be incorporated under the Act unless the laws of the other jurisdiction permit continuation and the company has complied with those laws.
- VOLUNTARY LIQUIDATION
A company may enter into voluntary, solvent liquidation through the appointment of a voluntary liquidator by members or directors. A company can only go into voluntary liquidation under Part XII if it either has no liabilities or it is able to pay its debts as they fall due; if it is insolvent, it must go into insolvent liquidation under the Insolvency Act, 2003.