In September 2001 The Manx Financial Supervision Commission issued a Consultative Paper on a new Companies (Amendment) Bill designed to make some urgently needed changes to the Companies Acts 1931 – 1993 and other related legislation. Many of the proposals had been included at the request of representatives of the finance and commercial sectors, whilst others were aimed at adopting internationally accepted standards of best practice and corporate governance.

The Consultative Paper also included revised proposals in relation to the dissolution of companies, changes to the requirements for an overseas company to register as a foreign or "F" company in the Isle of Man to remove the confusion surrounding the definition of "place of business"; simplification of the system for registration of charges and the abolition of the requirement for all directors names to be shown on letterheads.

Proposals were also included to facilitate the introduction of a fully on-line company incorporation, filing and searching service at the Companies Registry by making necessary amendments to the legislation relating to company forms.

The Companies, etc. (Amendment) Act 2003 came into partial effect in December, 2003, meaning that unlisted companies are now permitted to re-domicile in and out of the Isle of Man. Whilst companies conducting licensable business, e.g. banking, investment, insurance or corporate service provider business, will be subject to additional regulatory approvals, they will also be able to re-domicile should they so wish, the Financial Services Commission said.

In addition, the Amendment ushered in a number of other provisions contained in the Act including: registration of prospectuses; the obligation to display a company’s name outside its premises; and procedures relating to a company’s ability to dispense with compliance with certain provisions of the Companies Acts.

A right of appeal against a decision of the Commission to refuse to register documents under the Business Names, Industrial and Building Societies and Limited Liability Companies Acts is also introduced.

Other provisions facilitated the electronic filing of documents after March 1st 2004 following the introduction of the FSC’s Online Search Facility.

Furthermore, from 1st March 2004, holders of corporate service providers licenses and their key staff automatically qualified to act as secretaries of exempt companies and international companies. Other provisions corrected anomalies and made minor amendments to the Companies Acts 1931 – 1993 and related legislation.

Also, with effect from 1 April 2004, no new bearer shares could be issued by Isle of Man companies and the rights relating to existing bearer shares may not be exercised until the shares are registered.

A further, and more comprehensive reform of Manx Company Law was put to consultation in May 2004. In addition to setting out the case for reform, the consultation document laid out a number of options for the scope of reform, ranging from the consolidation of all of the Companies Acts into a single Act, to the retention of the existing corporate law framework, coupled with the creation of a new 'international company' corporate entity.

In August, 2005, the Government published draft legislation for the creation of a new type of business-friendly company. The new Manx corporate vehicle, or ‘NMV’, is designed to be simple and inexpensive to administer and to meet the Island’s obligations in terms of the commonly adopted benchmarks of international standards.

The concept, developed following a study of company law around the world, was originally scheduled for introduction early in 2006, to coincide with the Isle of Man’s move to a zero rate of corporate tax, but came into force on November 1. The first New Manx Vehicles, or '2006 Act companies' as they will now be known, were incorporated on the same day. Each 2006 Act company will be allocated a number followed by the suffix “V” to distinguish the new-style companies from the more traditional companies, which may still be incorporated under the Companies Acts 1931-2004.

"This new NMV corporate vehicle is designed to be both competitive and reputable," observed Treasury Minister Allan Bell. "Combined with the zero rate corporate tax regime the aim is to give the Isle of Man an unbeatable package to attract international business," he added.

In November, 2005, the Association of Chartered and Certified Accountants (ACCA) expressed serious reservations over the proposals for a simplified company vehicle, citing a lack of accountability and shareholder protection in the new company rules.

Keith Woods, president of ACCA Isle of Man, is concerned that under the proposal, there would be no requirements for audit, or any independent verification of accounts submitted to it for tax purposes. This, he says will place an unnecessary burden on the Income Tax Division, and on information supplied by local trading companies.

"Consequently ACCA anticipates that significant reassessments will be carried out in light of the zero tax policy, that is available to limited companies in the 2006/07 tax year for those companies incorporated under the new legislation," Mr Woods noted.

The ACCA IoM president also pointed out that with a lack of onus on directors to convert accounting records into financial statements, shareholders will also be disadvantaged.

"The purpose of the new vehicle is to make incorporation and administration of a company more cost effective than out offshore competitors, but this will undoubtedly mean more expense being incurred in legal fees drafting complex agreements," Mr Woods stated.

"This could drive business away from the Island, when the intended purpose of the proposed bill is to create new business," he warned.

In August, 2004, the Financial Supervision Commission launched an online company search facility of the Island’s Companies Registry allowing easier access for the public to search and view information about registered firms.

According to the FSC, the service provides details of all Isle of Man Companies, Overseas Companies registered in the Isle of Man, LLCs and Business Names. Users can also purchase company documents, check the availability of company names and submit an application to reserve a company name.

The launch of the system forms part of an ongoing programme to enhance the services provided by Companies Registry for both local and international users of the Isle of Man as a business centre.

Welcoming the new system, FSC Chief Executive, John Aspden observed: “Companies Registry has benefited from a significant investment in technology over the last 3 years enabling it to manage more efficiently the large volume of documents it receives each year. We are delighted to now offer access to company information and documents via the internet and believe the service will be more convenient and cost effective for users".

In May 2007 the Isle of Man Financial Supervision Commission (FSC) published a revised version of its General Licensing Policy for those seeking a banking, investment business or fiduciary services licence.

The revisions affect licencees in three areas: 2006 Act companies, sole traders and partnerships, and custodians of collective investment schemes.

The FSC said that companies registered under the Companies Act 2006 may be licensed as investment businesses or fiduciaries, subject to specified requirements to ensure an appropriate level of transparency and corporate governance, which would be applied through binding licence conditions.

2006 Act companies may not hold banking licences however, because such companies can reduce their share capital without the need to apply to the Courts.

The Insurance and Pensions Authority is also examining the possible uses of 2006 Act companies for businesses authorised or registered by the Authority with a view to permitting their use in certain circumstances and with appropriate safeguards in place to ensure comparable levels of transparency and corporate governance. The Authority said that it will be issuing further details in this regard shortly.

These restrictions on 2006 Act companies will apply only to licence applicants and licence holders, and not to other 2006 Act companies.

Existing sole trader and partnership licence holders may continue to operate. However, the Commission has decided to cease to license new sole traders or partnerships (except for a restricted category of fiduciary licence that is designed for natural persons only).

Custodians of certain types of collective investment scheme may now operate under a category 3 group (b) or a category 5 investment business licence.

The Commission is currently consulting the fund management industry in relation to the use of 2006 Act companies as vehicles for the operation of collective investment schemes.

Businesses in the Isle of Man which accept cash payments worth EUR15,000 or more will now have to comply with new anti-money laundering legislation in place in the jurisdiction. The Criminal Justice (Money Laundering) Code 2007 (the ML Code) came into effect on September 1, 2007. The ML Code replaced the previous Anti-Money Laundering Code 1998, and brought in changes to anti-money laundering and counter terrorist financing requirements. In addition, where previous legislation had focused on the financial services sector, the ML Code brought additional businesses within its remit, ensuring that the Isle of Man complies with international standards.

Private Company Limited by Shares

Isle of Man Private Limited Companies are incorporated under the Companies Acts 1931 to 2004 and 2006. A private company limited by shares is required to have at least one member, who can be an individual or a company, and it must be stated in the Memorandum of Association that the company is private. Annual returns must be made to the Registrar (cost £42), and details of the shareholders are held on the public files; but nominee shareholders can be used. A minimum of two directors are required, and they cannot be companies. An Isle of Man company can be incorporated within 7 working days and ready made companies are available for immediate use.

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Company Limited by Guarantee

The Company Limited by Guarantee, and its sibling, the Company Limited by Guarantee and having Shares, have existed since the earliest days of Company Law over 135 years ago. They are essentially mutual companies, and as such have historically been used essentially for charitable and non-profit purposes.

In the last thirty years, they have been increasingly used for private family foundations instead of discretionary trusts, since they are readily intelligable to persons from a non-equitable legal background, and avoid most of the problems associated with trusts. In addition, they have been used for proprietary and members' clubs in the international leisure and timeshare resort industry, where they meet all the requirements of modern EU (and Spanish) law, as well as for other social organisations. They have also been used for tax planning, making use of the extraordinary flexibility in relation to ownership and capital that such companies can provide. The Isle of Man is one of the leading jurisdictions for this form of company, not because it is unique to the Isle of Man, but because it was in the Isle of Man that all the development work has been done in the last three decades.

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Exempt Private Company

NB Exempt companies ceased to be formed as from 2006, although existing companies were permitted to continue in existence until 1st January, 2007.

The Income Tax (Exempt Companies) Act 1984 (as amended) provided exemption from Income Tax to a private company owned by non-residents, did not engage in any activity on the island (with minor exceptions), and had no source of income in the Isle of Man other than income from money invested with the Isle of Man Government or from banks licensed by the Treasury.

One of the company directors had to be resident in the Isle of Man. Additionally, the secretary of the company had to be a Manx resident and hold a qualification as required by the Act. The exemption required annual renewal (not available after 2006). The granting of exemption did not affect the liability of a company to deduct and account for income tax under the Income Tax (Instalment Payments) Act 1974.

To make a first-time application for exemption a company was required to complete forms TEC1 (signed by a director of the company) and TEC1(u), signed by a Manx-resident director of the company. The completed forms were to be submitted to the Income Tax Division together with the appropriate fee: GBP475 if the application was received not later than 30th June in the year of assessment; GBP1,260 if the application was received after 30th June but not later than 30th September.

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Public Company Limited by Shares

A public company is defined by the Companies Acts as one which is not a private company and which has at the end of its name the words 'Public Limited Company' or 'P.L.C.'. A public company must have a minimum of two members.

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Limited Liability Company

Limited Liability Companies were introduced by the Limited Liability Companies Act 1996. A Limited Liability Company (LLC) must have at least two members whose liability is limited to the extent of the capital they contribute to the company. Profits are divided among the members and are taxed in their hands, as for a partnership. An LLC does not have directors or a secretary, but it must have a registered agent on the island. The life of an LLC is limited to thirty years. LLCs are governed by articles of organisation and not memorandum and articles of association.

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International Company

The International Company (IC) was introduced by the International Business Act 1994. In effect this form broadened the concept of the exempt company. IC status could be acquired by a Manx-registered company (including public companies and limited liability companies) or by a foreign company registered on the island. International Companies were excluded from the same activities on the island as exempt companies (see above). The income and receipts of an IC (other than local bank deposit or approved investment income) had to be derived from outside the island, or from dealings with other ICs. An IC had to have a resident director and secretary (or agent in the case of a Limited Liability Company).

The International Company legislation was particularly aimed at helping finance sector companies. The rates of tax payable were negotiated between the company and the Manx authorities, but were not less than the annual duty of GBP1,260 (more if the application was filed late). As with exempt companies, the status of International Company had to be applied for each year.

International Companies were abolished along with Exempt Companies (see above) as from 2006.

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Branch of Overseas Company

If a foreign company intends to establish a branch or a permanent place of business in the Isle of Man, it is subject to Part XI of the Companies Act 1931, which provides for registration on the island. Within one month it must deposit with the Registrar a certified copy of its Memorandum and Articles of Association, a list and particulars of its directors and company secretary, and details of one or more resident individuals authorised to receive notices and communications. Once registered, the foreign company will be treated in the same way as a Manx company.

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Non-Resident Company

A Manx-registered company could apply to be non-resident if its central management and control was exercised from a foreign base. It was only liable to income tax if there was any income from the Isle of Man apart from bank interest. To obtain Non-Resident status a Declaration of Non-Residency had to be filed with the Registrar of Companies.

NB. In June 1999 the Manx Government imposed a moratorium on the formation of non-resident companies as part of its response to the Edwards Report. Non-resident companies were formally abolished as from 2006.

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General Partnership

Partnerships are governed by the Partnership Act 1909, which is based on the UK Partnership Act 1890 and the UK Limited Partnership Act 1907. Partners may be individuals or companies. In a general partnership, a partner's liability in unlimited. Under the Registration of Business Names Acts 1918 and 1954, partnership names must be registered if they differ from the surnames of the partners. Partnership agreements and financial accounts do not have to be filed at the general registry.

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Limited Partnership

Limited partnerships are also governed by the Partnership Act 1909. They must be registered as such, or they may be deemed to be general partnerships. Partners may be individuals or companies. A limited partnership consists of one or more general partners with unlimited liability, and one or more limited partners, who are liable only to the extent of their capital contributions. A limited partner does not take part in the management of the partnership and is not entitled to dissolve the partnership by notice. Limited partnerships may have up to twenty partners; but in banking only up to ten partners.

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International Limited Partnership

An International Limited Partnership (ILP) is similar in structure to a Limited Partnership and was introduced by the International Business Act 1994. The general partner must be a Manx-resident company and must comply with the requirements for a company to be an International Company (see above); the limited partners must either be non-resident or must be themselves International Companies. The status of International Limited Partnership has to be applied for each year, with payment of a GBP475 fee, and the Assessor issues a certificate. On demand, an ILP must produce its accounting records to the Assessor. There is no limitation on the number of partners in an ILP, and this format is suitable for collective investment vehicles, among others.

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Sole Proprietorship

The business name of a sole trader, who has unlimited responsibility for his liabilities, must be registered at the General Registry if it is other than the name of the sole trader.

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Trusts

The law of trusts is based on the English law and is governed by the following acts: the Trustee Act 1961 as amended; the Variation of Trusts Act 1961; the Perpetuities and Accumulations Act 1961; the Trusts Act 1995; and the Purpose Trusts Act 1996. The Trusts Act 1995 establishes that both for Manx trusts and for foreign trusts migrating to the island, Manx law is conclusive and will overcome any forced heirship provisions emanating from civil law jurisdictions. The Isle of Man adopted the Hague Convention in the Recognition of Trusts Act 1988, albeit with some modifications.

Trust documents are in English, and there are no requirements for registration; there is no stamp duty. The normal perpetuity period of a Manx trust is 80 years. There are no restrictions on the accumulation of income during the perpetuity period.

Trusts used for Investment Funds (Unit Trusts) are governed by the Prevention of Fraud (Investments) Act 1968, which contains prudential rules among others.

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