Incorporating a BVI company
Companies are incorporated in the British Virgin Islands (“BVI”) under the BVI Business Companies Act, 2004 (the “Act”) by the filing of Memorandum and Articles of Association with the Registrar of Corporate Affairs. This filing is made by the first registered agent of the Company (the “Registered Agent”) which each BVI company must have and must be located in the BVI.
The incorporation is effective from the date of filing the Memorandum and Articles of Association with the Registrar of Corporate Affairs. It generally then takes the Registrar of Corporate Affairs between three to five days to allocate a company number to the company, issue a Certificate of Incorporation and return stamped Memorandum and Articles of Association via its electronic filing system VIRRGIN.
There is no BVI law concept of subscriber shares and as such, unlike the position under English law, at the time of incorporation of the company by the Registered Agent there will be no subscriber shares in issue. Similarly, unlike the position under the English law, a BVI company on incorporation does not have any first directors.
The Registered Agent will appoint the company’s directors and company secretary, if one is required. There is no legal requirement for a BVI company to have a company secretary following its incorporation. There is no minimum number of directors that a BVI company must have and it can have either individual or corporate directors. There is also no residency requirement for directors.
Once directors have been appointed, they will be able issue shares to the shareholders.
There are no minimum share capital requirements, nor a concept of authorised share capital (merely the company is authorised to issue a certain number of shares). A company can be authorised to issue shares with or without par value. Shares issued with par value can be issued in any currency.
The consideration paid for the shares issued may be in any form, including money, a promissory note, or other written obligation to contribute money or property, real property or personal property, services rendered or a contract for future services. A relevant BVI law consideration for the issue of shares is that where a company is authorised to issue shares with par value, the consideration paid must be at least equal to the par value of the shares. This means that a company can not issue partly paid shares.
Choice of Appropriate Form of Entity
The Act provides that a BVI company can be incorporated as either a company limited by shares (as is most usual); a company limited by guarantee which is not authorised to issue shares; a company limited by guarantee which is authorised to issue shares; an unlimited company which is not authorised to issue shares; or an unlimited company which is authorised to issue shares.
Restricted Purposes Company
A BVI company could be incorporated as a “restricted purposes company”. The Act requires that the Memorandum of Association of a restricted purposes company contain certain specific statements i.e. a statement that the company is a restricted purposes company and a statement of the purposes of the company i.e. the specific objects of the company and the activities that the company is to engage in. Significantly, any action by the directors outside of the scope of these objects and activities provided for in the company’s Memorandum of Association will be ultra vires.
Having been incorporated, a restricted purposes company is not able to amend its Memorandum of Association to delete or modify the statement that it is a restricted purposes company and any resolution of the members or directors of a company purporting to do this is void and of no effect. However, a restricted purposes company may amend its Memorandum of Association to modify its purposes unless it is specifically prohibited from doing so in its Memorandum of Association.
Segregated Portfolio Companies
On prior application to the British Virgin Islands Financial Services Commission (the “FSC”), insurers and professional, private and public funds may be granted approval to be incorporated or registered (if already incorporated) as a segregated portfolio company (“SPC”). The SPC must be a company limited by shares.
An SPC is a single legal entity. Each segregated portfolio does not constitute a separate legal entity. Assets of an SPC are either segregated portfolio assets or general assets of the company which are not held in any segregated portfolio. Each segregated portfolio is created with the purpose of legally separating the assets and liabilities held by that portfolio from the other assets and liabilities of other portfolios of the SPC and from the general assets of the SPC. Directors of an SPC are under a duty to establish and maintain procedures for keeping the assets of a segregated portfolio separate from the general assets of the company and from the assets of the other segregated portfolios.
Other BVI vehicles commonly used
A BVI entity can also be formed as a limited partnership pursuant to the Partnership Act, 1996. The BVI partnership legislation and its concepts are similar to those in England.
A limited partnership does not have a separate legal personality from that of its constituent partners. Each limited partnership is composed of at least one general partner (who has unlimited liability for the debts of the partnership) and at least one limited partner (whose liability is limited to the capital he has contributed to the partnership). Limited partners cannot be involved in the management of the partnership or else they lose the benefit of limited liability.
A limited partnership must be registered with the Registrar of Corporate Affairs by the filing of the Memorandum of Partnership, which sets out basic factual details of the partnership including the objects for which it has been formed, identities of the general partner(s) and the registered office. The internal management of the partnership will be regulated by the Articles of Partnership. While these must be in place when the limited partnership is registered, they are not filed on the public record, but are held confidentially by the partnership’s registered agent.
BVI law also recognises traditional partnerships, again utilising the same basic concepts as English law. This means that the partnership does not have a separate legal personality from that of its constituent partners and all partners have unlimited liability for the debts of the partnership. No formal steps or public filings are required to form a partnership under BVI law, but it would be usual for the parties to enter into a partnership agreement to regulate the conduct of the partnership.
BVI law does not have a concept of limited liability partnerships with a corporate identity distinct from that of the partners.
The registered agent responsible for the incorporation of a BVI company (or registration of a limited partnership) is required by statute to obtain certain “know-your-client” information about the directors, shareholders or partners as appropriate.
When setting up a BVI entity, the participants should therefore be ready to provide certified copies of their photo ID and proof of address, together with professional reference letters. If they are corporate, nominee or trustee entities, then this information will be required of all participants up the chain to the ultimate individual beneficial owners.
This information is retained for internal compliance purposes and is not put on the public record.