Exempt Company

The Companies Act 1981 (as amended) provides exemption from the 60% local ownership requirement to a company which is does not engage in any activity on the island except with other exempt entities. Managing other exempt entities is also permitted, and, for mutual companies, so is the local distribution of their shares. Other activities may be permitted to exempt companies if a licence is granted by the Minister of Finance.

An exempt company must have two individuals resident in Bermuda, either as directors, or one as secretary and one as director, or one as secretary and one as 'permanent representative'.

Exempt companies pay annual fees based on their 'assessable' capital (authorised capital plus share premium account; or for a mutual company its authorised capital - a share premium account is not required) as follows:

An exempt company may apply to the Minister of Finance for a certificate exempting it from future profits taxation, should there be any, for a period ending not later than the 28th March, 2016.

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Local Company Limited by Shares

Bermudan companies are usually formed by registration under the Companies Act 1981 (although see below for updates to this), taking between two and five days depending on whether the Minister's approval is required, An application for registration is made to the Bermuda Monetary Authority, giving details of the proposed beneficial ownership and the proposed name is reserved with the Registrar of Companies; some sensitive words are not permitted, including 'bank'. When business requirements are unusual a company can be formed by Act of Parliament, which takes about two months.

Local companies must be 60% owned by a Bermudian and they can trade within the domestic economy. Two directors are required who cannot be corporate but need not be Bermudian; a secretary is required, does not have to be local, and can be corporate. At least one shareholder is required and nil-value shares are not permitted. The minimum capital is $12,000 (at the time of writing) and there is an annual fee related to the authorised capital, which does not have to be issued.

Accounts must be kept at a local registered office along with the share register and minutes of shareholders' and directors' meetings although the accounts are not open to inspection. The share register, register of directors and officers, certificate of incorporation and memorandum and articles of association are all publicly accessible.

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'Permit' Company

If a company incorporated outside Bermuda intends to open a branch or actively trade within Bermuda, it must first obtain a permit issued by the Minister of Finance. Whether an overseas company requires a permit is frequently a question of fact to be determined in the light of those activities which are intended to be carried on by or on behalf of the company in or from Bermuda. An overseas company is not normally considered to be trading within Bermuda unless it occupies premises there.

The application procedure takes up to 10 days and involves an application to the Minister accompanied by fairly extensive information about the company, its owners, and the proposed trade.

A permit company usually carries on its business in the same way and is subject to the same rules as an exempt company. Bermuda representatives must be appointed and the Registrar must be notified of the relevant particulars. A permit company must keep adequate records although they do not need to be filed except in the case of a permit company which is registered as an insurer.

A permit company pays an annual fee of $1,780 (at the time of writing) or, for insurance and finance companies, $3,635. Companies who manage unit trust schemes pay an additional fee of $2,595 for each scheme managed. If a permit is issued after the 31st October in any year, the fee payable for that year is reduced by 50 per cent.

Like an exempt company, a permit company may apply for exemption from future taxation for a period ending not later than the 28th March, 2016.

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Exempt Partnership

Partnerships are recognised in Bermudan law under the Partnership Act 1902 as amended, which is modelled on equivalent English law. They can become exempt from local ownership requirements and exchange controls under the Exempted Partnerships Act 1992, through an application process similar to that for Exempt Companies (see above). An exempted partnership must maintain an office in Bermuda and must appoint a resident representative.

Exempt partnerships pay the Government an annual fee of $2,100 (at the time of writing).

See next section for changes to partnership law in 2005.

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Limited Partnership

Limited partnerships are governed by the Limited Partnership Act 1883 as amended. As is usual, a limited partnership must have at least one general partner with full liability and one or more limited partners whose liability is limited to their contributions and who do not take part in the management of the partnership.

A limited partnership can become exempt under the Exempted Partnerships Act 1992 in the same way as a general partnership, and is subject to the same terms.

The Limited Partnership Act provides for limited partnership interests to be traded on overseas stock exchanges by permitting branch registers of limited partners to be maintained outside Bermuda.

An exempt limited partnership pays an annual fee of $2,100.

In 2005, partnership law was amended to simplify the regime for Exempted and Overseas Partnerships. The Exempted Partnerships Amendment Act 2005 and the Overseas Partnerships Amendment Act 2005 are designed to bring administrative rules for partnerships into line with those for companies and to permit more sophisticated uses for a Bermuda partnership.

Key changes include the following:

• The Register of limited members in a partnership will no longer be on the public file;
• The distinction between contributions in capital and kind is being abolished;
• The requirement for minimum capital of $12,000 has been removed;
• The notification requirement for changes in limited partners' capital has been removed;
• Individual non-Bermudian partners will no longer require authorization to act in Bermuda on behalf of their partnership.

It is expected that the changes will make it easier for investment funds to make use of a Bermudian partnership structure, in which the general partner is often a local firm and the limited partners are high-net-worth, sophisticated investors.

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Overseas Partnership

An overseas partnership is defined as a partnership formed under a law other than the law of Bermuda. An application must be made to the Minister of Finance giving the reasons why an exempted partnership should not be formed instead (for instance, that it is more tax-efficient). In other respects, the application process is similar to that for an exempted partnership. The Minister issues a permit, analogous to that for a permit company, and the Registrar keeps a register of overseas partnerships. An overseas partnership may not participate in the domestic economy.

An overseas partnership must maintain a registered office in Bermuda and must keep sufficient records there to show the nature of its business and its financial situation, updated at least every three months.

An overseas partnership pays an annual fee of $2,100. It is deemed to be non-resident and is exempt from exchange controls.

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Trusts

Bermudan trusts are governed by The Trustee Act 1975 which is largely based on the English Trustee Act 1925. The Trusts (Special Provisions) Act 1989, another significant statute, introduced the concept of the "purpose trust" and brought Bermudan law still closer to English law. The Perpetuities and Accumulations Act 1989 increased the perpetuity period to 100 years. Foreign inheritance laws are specifically excluded, and there is provision for the non-recognition of foreign judgements. Bermuda has adopted the Hague Convention; the Trusts (Special Provisions) Act 1989 made some consequent adjustments to the law. Appeal is to the English Privy Council.

In general, trustees need not be resident in Bermuda; but one must be. The trust fund may comprise cash, land, securities, interests in property or other trusts. Non resident trusts are not permitted to hold Bermuda currency, shares or security in local companies, or an interest in land in Bermuda without the prior consent of the Bermuda Monetary Authority.

Bermudan trusts need not be registered, and there is no stamp duty.

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Segregated Accounts Companies

The Segregated Accounts Companies Act 2000 came into force in November 2000. It allowed for the registration of segregated accounts companies by standardised procedures - previously, segregated accounts companies were being brought into existence by the Private Act route. This can still be used when necessary; but most new formations are likely to be under the new Act.

Segregated accounts companies are mostly used in the insurance sector (where they are often called protected cell companies), for umbrella mutual funds, and in the e-commerce sector where each individual user of a set of trading systems can occupy a segregated space rather than having to register separately. Server farms would be a good example.

The Act specifies that any asset linked to a particular segregated account is held in a separate fund for the beneficial interest of the account holder, and does not form part of the general funds of the segregated account company in the event of liquidation or sale. The concept is not totally unlike that of the trust, with the segregated account company playing the part of the trust manager.

Registered insurers may make use of segregated accounts companies without permission; other types of company need to obtain permission from the Minister of Finance.

NB A comprehensive review of the Bermuda Companies Act 1981 (the “Companies Act”) was undertaken in 2005 by the Legislative Change Committee of the Bermuda International Business Association , in collaboration with the Ministry of Finance and resulted in the modernization of the Companies Act, which will specifically improve the efficiency of Chinese companies wanting to incorporate in Bermuda.

Key aspects of the Companies Amendment Act 2006, which became operative on 29th December of that year, are as follows:

• Companies may now have unrestricted objects clauses;
• There is now no longer a minimum level of share capital;
• Secondary company names in languages other than English are permitted;
• Companies may now own their own shares;
• Notices and documents may now be sent by e-mail or displayed on a web-site;
• The requirement for deeds to be sealed has been abolished;
• Company directors are authorized to obtain more extensive liability insurance.
  

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