The provisions relating to bearer shares in the BVI Business Companies Act, 2004 (as amended,1 the Companies Act) follow the regime that was first introduced into the International Business Companies Act, 1984 as amended2 (the IBC Act) in order to regulate and restrict the transferability of bearer shares.3 Whilst the Companies Act has completely replaced the IBC Act, it has adopted and continued the previous IBC Act regime for bearer shares. Under this regime bearer shares cannot be delivered to the beneficial owner of the shares but only to a custodian, and the rights attaching to bearer shares are disabled unless they are deposited with a custodian. Although these provisions were introduced for regulatory reasons, they have a fundamental effect on the nature of bearer shares under the Companies Act because bearer shares no longer have the two most important characteristics of a bearer share in general, namely, (i) that the holder of the physical bearer share certificate is regarded as a member of the company and entitled to the rights attaching thereto and (ii) that transfer of ownership of a bearer share is by delivery of the physical bearer share certificate. Indeed, it may be argued that under this regime a bearer share is not a true bearer share at all despite the name but a hybrid form of share. Whatever the debate as to the true legal nature of a bearer share under this regime, there are detailed provisions relating to bearer shares in the Companies Act only an outline of which is given in this Guide.
2. Aims of the legislation
The provisions in the Companies Act have the following aims that are of a regulatory nature:
- to restrict the mobility of bearer shares by ensuring that they are deposited with approved persons (i.e. custodians);
- to restrict the rights in bearer shares unless they are deposited with custodians; and
- to provide for disclosure of information, especially to registered agents, about those with beneficial interests or entitlements in the bearer shares so held.
A custodian is a person who has the requisite approval from the Financial Services Commission (FSC) under the Financial Services Commission Act to act as a custodian of bearer shares.4 There are two categories of custodians: authorised custodians and recognised custodians. An authorised custodian must be a licensed person in the British Virgin Islands5 or a foreign entity that is approved by the FSC to act as a custodian.6 A recognised custodian is an investment exchange or a clearing organisation operating a securities clearance or settlement system in a Financial Action Task Force country.7 There are certain differences between authorised and recognised custodians in the operation of these provisions.
4. When can a company issue bearer shares
A company cannot issue bearer shares, or convert or exchange registered shares into bearer shares, unless expressly authorised to do so by its memorandum of association (memorandum).8 The memorandum must state whether the company is or is not authorised to issue bearer shares or convert or exchange registered shares to or for bearer shares.9 However, if a company is prohibited by the Companies Act or any other enactment from issuing bearer shares, the memorandum must also state that it is not authorised to issue bearer shares.10 In this regard, segregated portfolio companies, are not allowed to issue bearer shares or convert or exchange registered shares to or for bearer shares.11
5. Deposit of bearer shares with a custodian
The general rule is that where a company issues bearer shares, transfers treasury shares that are bearer shares or issues a bearer share converted from a registered share, it must not deliver the certificate for the bearer shares to any person other than a custodian who has agreed to hold the shares.12
Bearer shares in companies that were in issue when the IBC Act was amended were required to be deposited with a custodian by 31 December 201013 unless they were cancelled, redeemed or acquired by the company.14 All those former IBCs with existing bearer shares when they were automatically re-registered under the Companies Act on 1 January 2007 continue to be subject to the requirement to have those bearer shares deposited with a custodian by 31 December 2010.15 An “existing bearer share” is now defined as a share that was issued as or converted to a bearer share prior to 1 January 2005, that was a bearer share on that date and that had not prior to re-registration of the company under the Companies Act ceased to be a bearer share by virtue of section 37E(5) of the IBC Act.16
6. Disabling of bearer shares not deposited with a custodian
If a bearer share is not deposited with or delivered to a custodian, then it is disabled during the period when it is held by a person other than a custodian.17 Disablement means that the share does not carry any of the entitlements that it would otherwise carry and, in particular, the purported transfer of the share or any interest in it is void and of no effect.18 Therefore, the entitlement to vote, to a distribution and to a share in the assets of the company on liquidation are disabled during this period.19 However, there are important exceptions that deal with both the circumstances when shares are not disabled and with the rights that are permitted even during disablement.
In addition, bearer shares are not disabled if held by the company’s registered agent in certain defined statutory situations20 (for example, if the custodian transfers possession to the registered agent21 or if the custodian’s approval is revoked, the custodian must transfer the bearer shares to the registered agent within 14 days of ceasing to be a custodian).22 The shares are also not disabled if held by a person who received them when he was a custodian but has ceased to be so.23
Bearer shares are also not disabled where they are held by the company;24 where they are to be or have been converted to or exchanged for registered shares, redeemed, purchased or otherwise acquired by the company, or cancelled and forfeited;25 and where the company does not hold them for or on behalf of any other person.26
Even where bearer shares are disabled, certain entitlements are not thereby prevented. Disabling does not prevent the transfer or delivery of the bearer share to three persons: (i) a custodian;27 (ii) the company (where the share is to be or has been converted or exchanged to or for a registered share, redeemed, purchased or otherwise acquired by the company, or forfeited and cancelled, and in each of those cases the company does not hold the share for or on behalf of any other person);28 or (iii) the company’s registered agent under the same statutory defined circumstances29 set out above in relation to when the transfer to a registered agent does not disable the share.
Bearer shares cannot be subject to a valid mortgage or charge unless they are deposited with a custodian, irrespective of whether they are “grandfathered” or not.30
7. Provision of information concerning bearer shares
One of the mechanisms for regulating bearer shares under the Companies Act is to make it compulsory to disclose the name of the true owner of the shares. Under section 71, where bearer shares are deposited with an authorised custodian, the person depositing the bearer shares must provide the custodian with an accompanying notice in the approved form stating the full name of the beneficial owner of the shares,31 and the full name of any other person with any interest in the shares, whether by a charge or otherwise,32 and any other information as may be required by the approved form.33 If no other person has an interest in the bearer shares then the notice must contain a statement to that effect.34 Without such an accompanying notice, the authorised custodian must not accept the shares35 (with the result that they may become disabled).
Where bearer shares are deposited with a recognised custodian (rather than an authorised custodian), the disclosure requirement is slightly different. The person depositing the bearer shares must provide the same information, but it must be provided to the company’s registered agent within 14 days of the share being deposited, together with proof in the approved form of the deposit.36
The custodian also has a discretion under section 76 to notify the registered agent of the name and address of the person who has the right to the entitlements carried by a bearer share.37 The notice can specify the entitlements and may extend to all the entitlements or be limited to some of them (for example the right to vote at a specified meeting of members and to consent to written resolutions of members).38 Where the registered agent receives such a section 76 notice and it has not been revoked, the company must treat the person specified in the notice as the bearer of the share for the purposes of the entitlements specified in the notice.39 Such a notice can be revoked by the custodian by a written notice delivered to the registered agent.40
8. Transfer of interest in bearer shares
Subject to Part III, Division 5 of the Companies Act, a bearer share is transferred by delivery of a share certificate.41 This provision only makes sense in respect of a transfer between custodians or as outlined in paragraph 10 below, because when a bearer share is not deposited with a custodian, all rights in respect of it, especially the right to transfer by delivery of the share certificate, are disabled;42 yet, while it is deposited with the custodian, the share certificate cannot be physically delivered to anyone by the beneficial owner.
The reality is that bearer shares have been dematerialised and that beneficial ownership and interests in bearer shares can no longer be transferred by delivery of the share certificates. No particular form of transfer is specified in the Companies Act, but it does provide that any transfer of beneficial ownership or other interests in the bearer shares is not effective until the notice provided under section 71 (i.e. the notice giving the full name of the beneficial owner of the share and the full name of any other person with an interest in the shares, is amended by a notice in the approved form).43 Where bearer shares are held by an authorised custodian, the transfer of beneficial ownership is not effective until the amending notice is submitted to the authorised custodian44 and where held by a recognised custodian, until it is submitted to the registered agent.45
9. Duties of an authorised custodian
An authorised custodian has a number of duties in relation to bearer shares.46 The authorised custodian must notify the company’s registered agent within 14 days of receipt of bearer shares that it is the custodian of those shares.47 It must keep all the notices provided to it under section 71, any notice amending such notices on a transfer of beneficial interest, any notifications sent to the registered agent and a record of the location of the bearer shares.48 All of these must be kept, in the case of a British Virgin Islands authorised custodian, at its principal office or at such other office in the British Virgin Islands as the FSC may approve.49 In the case of a foreign authorised custodian, they must be kept at such office as is approved by the FSC.50 The authorised custodian must ensure that bearer shares remain in its custody and control at all times.51
10. Permitted transfers of bearer shares by custodians
An authorised custodian, a recognised custodian and a registered agent to whom the bearer shares have been delivered cannot in general transfer possession of the shares to any person. However, there are statutory exceptions which differ according to each one. Thus, they can all transfer the bearer shares to the company where the bearer shares are to be or have been converted to or exchanged for registered shares, redeemed, purchased or otherwise acquired by the company, or cancelled and forfeited.52 Authorised custodians can also transfer bearer shares to registered agents53 and to another authorised custodian who has agreed to hold them.54 The authorised custodian must deliver the original notices together with the bearer shares,55 but it must keep a copy of all notices for such period as may be prescribed.56 It must also send a notice to the registered agent in the approved form within 7 days where the transfer is to another authorised custodian or the company.57
In the case of a recognised custodian, it can transfer bearer shares to the company as mentioned above and to the registered agent.58 It must deliver the bearer shares together with a copy of any section 76 notice,59 and where the transfer is to the company, the company must send notification of its receipt of the shares to the registered agent within 14 days of such receipt.60
Registered agents can transfer the bearer shares to any custodian (whether authorised or recognised) who has agreed to hold them.61 Where they do so, having first received the shares from another authorised custodian, they must make copies of all notices and retain the copies made,62 and deliver the original notices and copies of notices together with the bearer shares.63
11. Other matters: distributions, purchase by company of its own shares, etc
In all other respects, the Companies Act treats bearer shares in the same way as registered shares. The statutory provisions relating to par value and no par value, consideration for issue of shares, rights attaching to shares, liabilities of shareholders, distributions, purchase by a company of its own shares and the solvency test, all apply equally to bearer shares as they do to registered shares, and are discussed in the Guide on Shares and Distributions under the BVI Business Companies Act.
12. Fees payable to Registrar of Corporate Affairs
There is a separate fee structure under the Companies Act setting out a different fee regime which applies to companies with power to issue bearer shares. Although the fee regime is complicated, there are a few important things to note before a more detailed analysis is made of these fee provisions.
- The fee differentials pertain largely to fees paid upon incorporation and annually.
- The main fee differential is dependent on whether or not the memorandum of the company gives the company power to issue shares not on whether or not any bearer shares have in fact been issued.
- A second fee differential exists for companies that have power to issue bearer shares and this is based on whether or not all of any issued bearer shares are held by an authorised custodian with its registered office and head office located in the British Virgin Islands.
- There is a third fee differential for IBCs that were automatically re-registered under the Companies Act. This differential is being gradually reduced and will end on 31 December 2009.
12.1 Incorporation Fees
12.1.1 If a company is authorised to issue no more than 50,000 shares then the standard incorporation fee of $350 is increased by $750 to $1,100 for bearer share issuing companies.64
12.1.2 If a company authorised to issue more than 50,000 shares or an unlimited number of shares then the standard fee of $1,100 is increased by $250 to $1,350 for bearer share issuing companies.65
12.2 Annual Fees
12.2.1 For a non-grandfathered bearer share company with:66
126.96.36.199 no bearer shares in issue or any issued bearer shares not held by qualifying custodian:
188.8.131.52.1 if the company is authorised to issue no more than 50,000 shares the standard annual fee of $350 is increased by $750 to $1,100;67
184.108.40.206.2 if the company is authorised to issue more than 50,000 shares or an unlimited number of shares the standard annual fee of $1,100 is increased by $250 to $1,350,68
220.127.116.11 all of the issued bearer shares held by qualifying custodian:
18.104.22.168.1 if the company is authorised to issue no more than 50,000 shares the standard annual fee of US$350 is increased by $450 to $800;69 and
22.214.171.124.2 if the company is authorised to issue more than 50,000 shares or an unlimited number of shares the standard annual fee of $1,100 is increased by $150 to $1,250.70
12.2.2 For a grandfathered bearer share company:71
126.96.36.199 during 2007 the standard non-bearer share fees would have applied;72
188.8.131.52 during the years 2008 to 2010:
184.108.40.206.1 if the company has no bearer shares in issue, or no bearer shares which have been issued are held by a qualifying custodian:
220.127.116.11.1.1 of the company is authorised to issue no more than 50,000 shares the standard fee annual of $350 is increased by $250 to $600;73
18.104.22.168.1.2 if the company is authorised to issue more than 50,000 or an unlimited number of shares the standard annual fee of $1,100 is increased by $150 to $1,250,74
22.214.171.124.2 if all issued bearer shares issued by the company are held by a qualifying custodian:
126.96.36.199.2.1 if the company is authorised to issue no more than 50,000 shares the standard annual fee of $350 is increased by $150 to $500;75
188.8.131.52.2.2 if the company is authorised to issue more than 50,000 shares or an unlimited number of shares the standard annual fee of $1,100 is increased by $100 to $1,200,76 and
184.108.40.206 for 2011 and beyond the standard bearer share fees apply regardless.
13 Qualifying custodian and grandfathered bearer share companies provisions
13.1 Qualifying custodian
To take advantage of the qualifying custodian fee reduction every bearer share in issue on the annual fee due date and every bearer share in issue during the prior 12 months must be held by a qualifying custodian. A qualifying custodian is an authorised custodian licensed under the Financial Services Commission Act with its registered office and head office located in the British Virgin Islands.77
13.2 Grandfathered bearer share company.
To be a grandfathered bearer share company five conditions must be met:
13.2.1 On 31 December 2004 the company was on the Register as an International Business Company.78
13.2.2 On 31 December 2004 the memorandum of the company did not prohibit the issue of bearer shares.79 1
3.2.3 The company was automatically re-registered under the Companies Act on 1 January 2007.80
13.2.4 A notice to disapply the Schedule 2 grandfathering provisions has not been filed.81
13.2.5 The memorandum of the company has not since 31 December 2004 been amended to prohibit the issue of bearer shares.82