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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 is now set to take
place later in 2006. NMV companies will be available
in addition to existing Isle of Man companies, which
will be retained.
"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”.
Private Company Limited
by Shares
Isle
of Man Private Limited Companies are incorporated under
the Companies Acts 1931 to 1993. 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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