On 1 January 2007 the British Virgin Islands Business Companies Act 2004 (the BVI BC Act) became the sole Business Companies Act in the jurisdiction, creating an environment where financial institutions and corporations can undertake a wide range of structured asset and project finance transactions in the BVI.

In October 2004 Chief Minister Dr. D. Orlando Smith had informed the country’s Legislative Council that a two-year transition period would be put in place to smooth the changeover to the new Business Companies Act, which lowered the income tax rate to 0% for both local and International Business Companies and effectively removed the distinction between 'offshore' and 'onshore' entities.

The new IBC legislation was drafted to ensure the territory was fully compliant with the European Union (EU) Savings Tax Directive and EU Code of Conduct on Business Taxation, as required by the United Kingdom of all its Overseas Territories.

Under the transition arrangements, new incorporations were possible under old legislation throughout 2005. From 2006, new incorporations had to be made under the new Business Companies Act, although companies already on the register were permitted to operate under the old IBC Act or Companies Act for an additional year.

The Act requires companies to use a registered agent to ensure compliance with the new laws.

Under the 1984 IBC Act, which preceded the 2004 Business Companies Act, just one corporate form was available, that of the company limited by shares. Under the new regime, several different types of companies can be incorporated. These are:

• Companies limited by shares. Likely to remain the most popular form of BVI company. (For more detailed information, see the British Virgin Islands International Business Company section below);
• Companies limited by guarantee not authorised to issue shares. This corporate form is likely to prove useful for not for profit organisations;
• Companies limited by guarantee authorised to issue shares. This 'hybrid' type of company provides greater flexibility in structuring transactions, as a result of its combined equity and guarantee membership;
• Unlimited companies authorised to issue shares. This structure provides greater transparency, as it is possible to look through the company to its shareholders; and
• Unlimited companies not authorised to issue shares. This type of company could be used to ensure effective estate planning.

The Act also allows companies to be registered as Restricted Purposes or Segregated Portfolio Companies. The former would likely be used primarily in structured finance transactions, while the latter's use will be limited to mutual funds and insurance companies.

The legislation allows more flexibility on the name that can be used by a BVI business company, and allows the re-use of the name of a company which has been previously struck off from the register, has changed their name, or been dissolved. The Act also permits company names to contain foreign characters, which should be particularly attractive to company owners in the Far East.

The BVIBC Act has abolished the concept of authorised share capital and replaced it with a maximum number of shares that the company is entitled to issue.

It has also removed the requirement that a dividend can only be declared and paid out of 'surplus', leaving in place the pre-existing solvency test requirement, and has boosted the rights of minority shareholders.

As previously stated, a registered agent must apply to form the company and provide a written consent to act, but the registered office of the company need not be the address of the registered agent, although it must be within the BVI.

The Act has also formalised and tightened the record keeping obligations of companies.

Bearer shares are now prohibited unless authorised by the memorandum or articles of association, and bearer share certificates must be deposited with a custodian who has been approved by the BVI Financial Services Commission.

A company which had existing bearer shares (created before 1 January 2005), and which re-registered on 1 January 2007, is obliged to deposit its bearer shares with an appropriate custodian on or before December 2010.

Those eligible to apply as an “authorised” custodian are service providers licensed under any BVI financial services legislation, as well as bodies corporate incorporated or formed outside the BVI that are not resident in, and do not have a place of business in, the BVI. Those eligible to apply as a “recognised” custodian are investment exchanges or clearing organizations that operate securities clearance or settlement systems in a jurisdiction which is a member of the Financial Action Task Force.

All applicants to be “authorised” custodians have to satisfy the Financial Services Commission that they meet certain “fit and proper” criteria and have the necessary systems in place for safe custody of their bearer shares. For bodies corporate, the Commission will consider the prudential regulation and anti-money laundering regulations with which the bodies have to comply.

A company issuing bearer shares must provide the Custodian with:

• the full name of the beneficial owner of the shares; and
• the full name of any other person having an interest in that share or a statement to the effect that no other person has any interest in the share.

The full text of the BVI Business Companies Act 2004 can be found in the Tax News Resources section.

The remainder of this page deals with the company formation regime in the BVI as it existed prior to the implemenation of the BVI Business Companies Act 2004, which began the next year.

The vast majority of companies formed in the BVI for offshore purposes were traditionally incorporated under the International Business Companies Act 1984 (see below). However this law did not supersede the existing Companies Law 1963, also known as Cap. 285, which was based on English law and is used to form various types of company used by businesses trading in the BVI, and also for certain other special purposes.

Companies formed under the Companies Act 1963 were often referred to as 'CAC', 'CapCo', or 'Cap. 285' companies. They could be private companies limited by shares, by guarantee, or hybrid; or they could be unlimited, but that is rare. Public companies can also be formed under the Act. For all these types of company, Memorandum and Articles of Association must be filed at the Companies Registry, along with the registration fee. For companies limited by shares the Articles of Association can follow the Memorandum - 'Table A' applies if no Articles are registered.

Foreign companies can re-establish themselves in the BVI without the necessity for reciprocal arrangements in the original country of incorporation. An IBC wishing to leave the BVI may do so.

Responding to international pressure, the BVI Government legislated to restrict bearer shares. The International Business Companies (Amendment) Acts of 2003 and 2004 provided the legal framework for immobilising bearer shares.

Ordinary Resident Company (Superseded)

An ordinary resident company limited by shares was usually formed for the purposes of carrying on local business. It must:

• have two or more members;
• restrict the transfer of its shares;
• not invite the public to subscribe for its shares; and
• must not have more than 50 members.

Residence depends on the location of management and control; usually, if more than half of the directors are resident in the BVI, then so is the company. If a resident company carries on business in the BVI it must obtain a Trade License, and will pay a license fee depending on whether the shareholders are residents or foreigners. The fee due on incorporation is $200 plus $15 for each $10,000 of nominal capital in excess of $10,000. Annual registration fees are from $25 to $10,000 depending on the gross value of the company's external (non-BVI) assets.

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Ordinary Non-Resident Company (Superseded)

An ordinary non-resident company limited by shares is subject to the same rules as a resident company; see Offshore Legal and Tax Regimes for details of the taxation of non-resident companies. Fees on incorporation are as for resident companies; the annual registration fee is $250.

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Company Limited by Guarantee (Updated: See Above)

Under the Companies Act, a company limited by guarantee must have a minimum of two members; the Memorandum of Association contains a statement of the amount up to which the members guarantee the company's debts. The Articles can provide for the members to have differing 'shares' of the assets and liabilities.

The Company Limited by Guarantee has certain advantages, including that there is no list of members on the annual return, and that control over assets can be achieved without the use of shares; in some jurisdictions, profits realised from such companies are classified as capital gains rather than as income. Specialist advice is required by anyone considering the use of a company limited by guarantee.

Companies limited by guarantee can be resident or non-resident, as for those limited by shares. The fee payable on incorporation is $100, and annual registration fees are as for companies limited by shares.

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Hybrid 'Cap 285' Company (Updated: See Above)

A hybrid company under the Companies Act usually has a group of shareholding members which is distinct from the group of guarantors. The shareholders can have 100% of the voting power, and can execute a trust deed in respect of their shareholdings; under the BVI's trust legislation (see Law of Offshore) a trust Protector can be appointed to oversee the trustees' actions. The result, if the company is set up correctly (specialist advice needed!), is to separate control and membership of the company from beneficial interest, which is sometimes desirable.

Hybrid companies can be resident or non-resident, as for companies limited by shares. The fee payable on incorporation and the annual registration fees are as for companies limited by shares.

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Public Company

A public company formed under the Companies Act is similar to a private company limited by shares except that it must have 5 or more members, and the restrictions listed above do not apply.

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International Business Company (Updated: See Above)

The International Business Company was the most widely used vehicle for offshore operations in the BVI; it normally took the form of a private company limited by shares. The governing legislation is the International Business Companies Act 1984, updated by the International Business Companies (Amendment) Act 1990 and the International Business Companies (Amendment) Acts of 2003 and 2004, which immobilise bearer shares (see above) and impose record-keeping requirements on professional intermediaries. Existing IBCs will be able to amend their Memoranda of Association to state that they are authorised to issue only registered shares and that these may not be exchanged for bearer shares. They will be required to file this statement with the BVI Registrar of Companies, along with a declaration that they have no bearer shares in issue.

Under the International Business Companies (Amendment) Act 2003, from December 31, 2004, all international business companies (IBCs) located in BVI are required to establish and maintain a Register of Directors, and must appoint their first director within 30 days of the IBC's incorporation.

Other statutory requirements however remain minimal, and flexible:

• Only one director and one shareholder are required;
• Shareholders, directors and officers need not be resident in the BVI and there is no stipulation as to their nationality;
• There is no minimum capital requirement; shares may be either registered or bearer and may be issued in any currency (bearer shares now have to be deposited with an authorised intermediary, who must record the identity of the beneficial owner);
• Accounts need not be kept; however, if they are kept there is no requirement for an audit;
• No returns are needed of shareholders, directors or officers;
• Shareholders' and directors' meetings need not be held in the BVI and can be held by telephone;
• The Memorandum and Articles of Association are the only documents to be held on the public record.

IBC status is granted subject to certain conditions:

• No business may be transacted with residents in the BVI;
• No ownership interest in real property in the BVI is permitted; property may be leased for office use only;
• Banking or trust business may be carried on only if an appropriate license is issued;
• Likewise, a licence is required to carry on insurance or re-insurance business;
• Engaging in the business of company management or providing registered facilities for BVI incorporated companies is not permitted.

IBCs are permitted to own shares in other BVI companies, maintain bank accounts in the jurisdiction and employ the services of local professionals. IBCs are exempt from BVI taxes by statute.

It is usual to use a registered agent in the BVI to incorporate an IBC (eventually it is obligatory to appoint one anyway; there are about 70 of them, licensed by the Government). Fees for incorporation of an IBC are based on the company's authorised share capital. Normally, the incorporation process takes no more than one day; however, for banks, trust companies and insurers the process is lengthier (see Offshore Legal and Tax Regimes).

Statutory incorporation fees are $350 for capital up to $50,000 and $1,100 thereafter. The annual license fee is:

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Limited Partnership

BVI Limited Partnerships are governed by the Limited Partnerships Act 1996; as regards general partnerships this act reproduces almost exactly the common law provisions of the English Partnership Act 1980, but the clauses dealing with limited partnerships follow modern US Delaware precedent.

Formation of a limited partnership is normally carried out by a registered agent (it is obligatory to nominate one on formation in any event). The agent files the Memorandum and Articles of Association with the Registrar of Limited Partnerships, who issues a Certificate of Limited Partnership; the partnership then exists; but if there is no certificate, the partnership will be deemed to be a general partnership. The fee payable on registration if $500 and there is an annual license fee, also $500.

The rights and limitations of limited partnerships under the Act mirror those of the International Business Company (see above); however the Act distinguishes between local and international partnerships - local partnerships may transact local business but are not tax-exempt, while international partnerships are tax-exempt but barred from local business.

The BVI limited partnership legislation was designed to facilitate the use of such vehicles in investment and mutual funds. As is usual in limited partnerships, there are one or more general partners with unlimited liability and management responsibility, while limited partners are liable only to the extent of their capital contributions, and their identity does not need to be disclosed. It is possible for the same person to be both a general and a limited partner in the same partnership. A limited partner's interest in the partnership is assignable. There are no minimum capital requirements or prescribed debt:equity ratios.

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Trusts

The trust law of the British Virgin Islands is based on English trust law. The Trustee Amendment Act 1993 (the "Amendment Act") updated the original British Virgin Islands Trustee Act (itself largely based on the English Trustee Act 1925).

The Amendment Act introduced a fixed perpetuity period not exceeding 100 years, and has modern 'wait-and-see' provisions to deal with interests that might vest outside the perpetuity period. The Amendment Act also introduced purpose trusts. See Law of Offshore for a fuller description of the legal regime for Trusts in the BVI.

BVI trusts are exempt from registration under the Registration and Records Act, and trustees are exempt from any need to file annual returns and from any other reporting requirements.

The majority of BVI trusts are exempt from all taxes provided there are no beneficiaries resident in the BVI, and that the trust does not conduct any business in the BVI or own any land in the jurisdiction; see Offshore Legal and Tax Regimes for further details. A trust duty of $50 is imposed on each trust instrument subject to BVI proper law.

The Amendment Act provided for the appointment of a 'protector of trust', effectively a supervisor of the trustee(s), and also managing and custodian trustees. A company offering trust services must obtain a licence under the Banks and Trust Companies Act 1990 and conform to various conditions. See Offshore Business Sectors: Trust Management.

With effect from 1 March 2004, three new pieces of Trust Legislation came into force in the BVI:

• The Virgin Islands Special Trusts Act (VISTA);
• The Trustee (Amendment) Act; and
• The Property (Miscellaneous Provisions) Act.

The Vista Act allows trustees of VISTA trusts which hold a shareholding in a BVI International Business Company to disengage the trustee from management responsibilities. The use of trusts to cater for the succession of shares in companies has historically been impeded by the 'prudent man of business' rule of English trust law which is designed to help preserve the value of trust investments. The new legislation leaves the responsibility for managing the company to the directors of the company.

The new Act applies only where there is an enabling provision in the trust instrument. Where the new Act applies, designated shares will be held on “trust to retain” and the trustee’s duty to retain the shares as part of the trust fund will have precedence over any duty to preserve or enhance their value. It is also possible to amend existing trusts to allow the provisions of the VISTA Act to apply to them.

The Act is confined to shares in BVI International Business Companies and Companies Act companies; and the trustee of a VISTA trust must be a company which holds a licence to undertake trust business under the Banks and Trust Companies Act, 1990.

The Trustee (Amendment) Act makes a number of amendments to the BVI Trust law. These include: new regulations improving the BVI's purpose trusts regime and some amendments in relation to conflicts of laws provisions, including robust, comprehensive and carefully crafted provisions protecting BVI trusts (and dispositions to their trustees) against “forced heirship” claims.

Trust duty has increased from $50 to $100.

The Property (Miscellaneous Provisions) Act provides that deeds executed by individuals no longer need to be sealed.

In July, 2005, the BVI said it would amend its trusts legislation so that special trust vehicles can hold shares in private trust companies (PTCs), thus broadening the appeal of the vehicles.

The Virgin Islands Special Trusts Act (VISTA), which came into effect in March 2004, allowed trustees of VISTA trusts which hold a shareholding in a BVI International Business Company to disengage the trustee from management responsibilities.

The British Virgin Islands has had new laws on private trust companies from January 1, 2007.

According to Robert Mathavious, Managing Director and Chief Executive Officer of the BVI Financial Services Commission, speaking in November 2006, the legislation has been introduced by amending the Financial Services Commission Act and issuing a new Regulatory Code under that Act which enables certain categories of companies to apply, on a fast-track basis, for exemptions from the licensing requirements and other provisions of the BVI’s Banks and Trust Companies Act.

The changes were applauded by the Society of Trust and Estate Practitioners (STEP), which has said that the introduction of the measures would make the BVI a highly attractive jurisdiction to use for the incorporation of private trust companies.

Deputy Chairman of STEP-BVI, Christopher Mckenzie observed that that the element of certainty that would be created by the new measures would attract those who are seeking a reputable jurisdiction in which to set up these sorts of structures.

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