With increasing levels of take-over bids and other acquisitions in a climate where acquisitive growth seems to hold sway over organic development, using Jersey corporate holding structures makes a lot of sense when it comes to structuring these transactions. Add in the possibility, in appropriate circumstances, of combining an offshore structure with an onshore structure, particularly one which is in the EU and has the advantage of tax treaties or complying with other international directives, the opportunities of enhancing the structuring can be greater still.
The principal advantage of using a Jersey holding company is a combination of the familiarity of Jersey company law in comparison with English company law as well as the flexibility of Jersey company law in relation to creating the right structure to suit the parties and the nature of the transaction. Whether the acquisition is of the whole or part of the target business or interest as an add-on to an existing business, or standalone new business for investors who will be seeking a return after restructuring and/or active management, opportunities to structure are available to suit most requirements. The opportunities in the former case may revolve around the tax neutral treatment that can be achieved, whilst in the latter case, the ability to make returns to investors, whether by means of dividend, redemption of share capital or share buy-back. In particular, monies payable on redemption of redeemable shares or on the buy-back of shares by a Jersey company, may be funded from any source, including capital.
Jersey corporate laws appeal to businesses and investors alike because they are familiar; Jersey's principal statute, the Companies (Jersey) Law 1991 (Companies Law), is to a large extent modelled on, and uses many of the same concepts as, the English Companies Act. They are also flexible; the Companies Law, whilst robust, offers a degree of flexibility not afforded by English law in certain key aspects.
- Constitution: A Jersey company's constitution is very 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 businesses and investors alike 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 Jersey companies to accommodate investor expectations and / or to satisfy the relevant regulatory requirements imposed upon the company if operating in other jurisdictions, eg a listed company's obligations.
- Distributions: 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 is able to carry on its business and discharge its liabilities as they fall due for 12 months after the distribution. The ability of Jersey companies to distribute from a wide range of sources in this way may be an advantage over other companies incorporated elsewhere, which may need to have qualified profits and satisfy additional capital maintenance requirements in order to make a distribution, particularly where the company needs to maintain a consistent dividend policy or a contractual fixed rate of dividend.
- Repurchase of shares: Similarly, a Jersey company's shares (whether it is private or public), may be repurchased from any source provided that a cashflow solvency test is met. This may provide an edge over companies incorporated elsewhere in circumstances where the procedure allowing the company to purchase their own shares out of capital may only be available to private companies.
A zero rate of income applies to virtually all Jersey companies.
However, if required, it is possible to ensure that a Jersey company is tax resident in another jurisdiction provided that:-
- It is centrally managed and controlled in another jurisdiction outside of Jersey;
- It is tax resident in that other jurisdiction; and
- The highest rate of corporation tax in that other jurisdiction is 20% or above.
No stamp duty is payable on the transfer of shares in a Jersey company and there is no corporation or capital gains tax in Jersey. Jersey levies no annual taxes or charges by reference to a company's authorised or issued share capital. Although Jersey has a goods and services tax at a rate of 5%, companies beneficially owned outside of Jersey which do not supply goods or services in Jersey will generally qualify for "international service entity" status - effectively bringing them outside of the scope of the goods and services tax regime, provided that a fee of £100 is paid each year.
An acquisition often involves the issue of loan notes in connection with the acquisition and financing. The Channel Islands Stock Exchange (CISX) was designated by the UK Inland Revenue as a recognised stock exchange under Section 841 of the UK Income and Corporation Taxes Act 1988 in 2002. This designation means that qualified debt securities listed on the CISX are eligible for the "quoted Eurobond exemption" which allows an issuer within the UK tax net to make payments of interest on the listed securities gross without deduction of tax.
Ogier Corporate Finance Limited (OCFL) is a full listing member of the CISX and is able to act as sponsor for listing purposes, having extensive expertise in this area. OCFL has sponsored over 480 current eurobond listings which represents over 34% of all such listings.
Further details of the services provided by OCFL are available on request.
Migration and Merger
If the laws of its country of incorporation permit, an existing foreign company may migrate to Jersey. In doing so, it ceases to be incorporated in its original country of incorporation and instead continues existence as a registered Jersey company. Similarly, Jersey company law also allows a foreign holding company to merge with, and continue as, a Jersey company. The migration and merger routes are potentially ways of restructuring an acquisition using a Jersey company to achieve results which may not be possible, or may be less attractive, than using an existing non-Jersey company. Further details as to the process of migration or merger are available on request.
Marketing a Jersey company's shares
To the extent that shares in the Jersey company may require to be marketed after the acquisition has been completed, its shares will generally be capable of being marketed freely from a Jersey law perspective. There are rules in Jersey dealing with the issue and circulation of a prospectus but these are only relevant if the offer is deemed to be an offer to the public, and even in the context of a wider offer which is public, complying with the prospectus rules is not unduly onerous.
There are other marketing considerations which may have an impact on how one structures a Jersey holding company. For example, some investors, particularly those in Europe and North America, require shares or securities to be issued by an issuer which is appropriately recognised or regulated (eg an OECD territory issuer, which Jersey is). Some require any investment to be held as shares rather than depositary receipts - Jersey companies can do both.
Exit by IPO
Jersey incorporated companies have been used for listing on many of the world's stock exchanges and if that is in contemplation as a potential ultimate objective after an acquisition, you can generally be assured that you will be following a well trodden route when the time comes. A separate briefing on listing a Jersey company is available on request.
Establishing a Jersey Company
Incorporating a new Jersey 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 is not required to have Jersey resident directors. Ogier frequently handles the incorporation process for its clients and also provides registered office and company secretarial services on an ongoing basis.
Why use Jersey?
Reasons for using Jersey include
- Jersey is a leader among offshore jurisdictions, has a top tier reputation and consistently ranks highly in surveys including onshore and offshore countries;
- As one of the largest offshore jurisdictions, Jersey has the legal and administrative infrastructure, depth and expertise to facilitate complex transactions;
- Jersey company law is based on English company law but tends to be more flexible;
- Fast track incorporation companies available (same day if required);
- Jersey's close proximity to and same time zone as London, makes closing transactions a simpler process, whilst also being in between both American and Asian markets;
- An extremely favourable corporate tax regime and no stamp duty on transfer of shares of Jersey companies.