What is the main source of law authorising this entity form?
The BVI Business Companies Act, 2004 (the “Act”).
Give a brief summary of the entity form:
Does the entity possess separate legal personality?
A business company is a legal entity in its own right separate from its shareholders.
(Maximum) period of existence
There is no maximum period of existence unless its memorandum and articles of association ("memorandum and articles") provide otherwise.
Governing document(s)
A business company is governed by its memorandum and articles, which can be "off the shelf" or tailored.
Liability of incorporators / shareholders
Shareholder liability is generally limited to the amount (if any) unpaid on the shareholder's shares (subject to limited instances of the courts being prepared to "pierce the corporate veil.")
(Governing) bodies
The directors manage the affairs of a business company.
Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?
Under the BVI Business Companies Act, 2004 a business company can enter into cross border mergers, acquisitions (of shares or assets), consolidations and arrangements, etc.
Can this type of entity be publicly listed or held?
Yes. Business companies are regularly used for IPOs and have been listed on most of the world’s major stock exchanges, including the London Stock Exchange, the New York Stock Exchange, NASDAQ, the Hong Kong Stock Exchange and the Toronto Stock Exchange.
Can this type of entity be used for a non-profit or charitable organization?
Yes, although not common in practice.
Give a brief summary of the process of incorporation, formation, or organization, including:
Main documents required
Incorporation application to the Registrar of Corporate Affairs and the memorandum and articles of the proposed business company.
Involvement of notary, company register, governmental authorities
A BVI registered agent must incorporate a business company.
Timing (estimate)
Incorporation can take place within 24 hours if completed client due diligence has been provided. Company names can be reserved.
Main costs, including registration and similar fees (excluding legal fees)
Incorporation and annual BVI government fees of US$450 (if a business company is authorised to issue up to 50,000 shares) or US$1,200 (if a business company is authorised to issue more than 50,000 shares). Additional fees may be charged in relation to applications to set up funds or business companies carrying out regulated activities.
Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?
The general capacity and powers of a business company are briefly included in the memorandum (which is filed with the Registrar of Corporate Affairs).
Minimum number of incorporators / shareholders and residency requirements
A BVI registered agent must incorporate a business company. There is no requirement for the initial incorporator(s) to take shares. Shares are issued by the directors. There must be a minimum of one shareholder; however this requirement does not apply during the period from incorporation to the appointment of the first directors. There are no local residency requirements for shareholders.
Minimum number of directors (or other applicable officers) and residency requirements
The BVI registered agent which incorporated a business company has the power to appoint the first directors of the business company. Normally directors will be appointed (there must be at least one) on the date of incorporation. There are no local residency requirements for directors.
Minimum share capital, or equivalent, and payment requirements (including opening a bank account)
There is no concept of authorised share capital applicable to business companies incorporated under the BVI Business Companies Act, 2004. Instead a business company is authorised to issue a maximum number of shares (which may be divided into classes). There is no requirement for a local bank account.
Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?
The application for the incorporation may be filed only by the proposed registered agent (such agent must be located and licensed in the BVI). Directors do not need to be resident or otherwise physically present in the BVI.
Pursuant to the Economic Substance (Companies and Limited Partnerships) Act, 2018, for a relevant activity to be directed and managed from the BVI there must be an adequate number of board meetings held in the BVI with a quorum of directors physically present in the BVI.
A business company must have a registered office in the BVI which is usually that of its registered agent.
Is a tax identification number, or equivalent, required? If so, how is it obtained?
No.
What is the title of the applicable company registry?
Registry of Corporate Affairs.
What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:
The information listed below must be filed at the Registry of Corporate Affairs and is publicly available:
- Memorandum and articles (and any extract shareholder resolutions amending the same).
- Name and address of BVI registered agent.
- Maximum number of authorised shares (which will be set out in the memorandum and articles).
- Notice of appointment of liquidator.
In addition:
- Where a business company creates security over its assets, it is usual for a lender to require the business company to publicly file particulars of the security (not the underlying document).
- Where a shareholder creates security over shares in a business company, a lender may require the business company to publicly file a copy of its register of shareholders (annotated to record the security).
- The register of directors is filed at the Registry of Corporate Affairs but is not publicly available unless the company elects otherwise or disclosure is required by a court order or during investigation by a competent government authority.
What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?
The board of directors (or, if a business company only has one director, the sole director). The directors have all the powers necessary for managing, and for directing and supervising, the business and affairs of a business company, subject to any limitations in the memorandum and articles.
The BVI Business Companies Act, 2004 codifies various equitable and common law duties owed by a director of a business company, including -
- acting honestly and in good faith and in what the director believes to be in the best interests of the business company;
- to exercise such director’s powers for a proper purpose, not acting or agreeing to the business company acting in a manner that contravenes the BVI Business Companies Act, 2004 or the memorandum or articles; and
- to exercise the care, diligence and skill that a reasonable director would exercise, taking into account the nature of the business company, the nature of the decision and the position of the director/nature of the responsibilities undertaken by the director.
How are the members of the executive body appointed, dismissed and replaced?
Appointment:
A director must consent in writing before being appointed. The BVI registered agent must appoint the first director(s) of a business company within six months of the date of incorporation. Subsequent directors of a business company may be appointed by the shareholders or directors, subject to the memorandum or articles. A director holds office until his or her successor takes office or until his or her earlier death, resignation or removal.
Dismissal:
Subject to the memorandum or articles, a director may be removed from office by resolution of the shareholders (also referred to as members) (or, if permitted by the memorandum or articles, by a resolution of the directors).
Any changes to the directors of a business company must be recorded in its register of directors and the Registrar of Corporate Affairs notified (given the requirement to file the register of directors at the Registry of Corporate Affairs).
Is it possible to appoint corporate directors or must all directors be natural persons?
Yes.
Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?
Yes although, subject to the memorandum and articles, this is not required. For most business companies, it is usual for there to be a one-tier board (unless it is a listed company).
What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?
The meeting of members (also referred to as shareholders) has all rights and responsibilities provided to it by law and the memorandum and articles that are not imposed on the directors of a business company. Members have the rights granted to them under the memorandum and articles and under the BVI Business Companies Act, 2004. Typically a member exercises voting rights (subject to the memorandum and articles) on matters which may include amending the memorandum and articles, changing the board of directors and approving the liquidation of a business company. Subject to the memorandum and articles, an action that may be taken by members of a business company at a meeting of members may also be taken by a resolution of members' consented to in writing without the need for any notice.
What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?
A members' resolution requires the approval of a simple majority (or such higher percentage as is specified in the memorandum and articles) of members who, being entitled to do so, vote in person or by proxy at a general meeting of the company (or consent in writing, if permitted to do so in the memorandum and articles).
The quorum for a meeting of the members is fixed by the memorandum or articles. If no quorum is fixed, a meeting of members is properly constituted for all purposes if at the commencement of the meeting there are present in person or by proxy, members entitled to exercise at least fifty percent of the votes.
In general, members' rights in the memorandum or articles (including quorum for meetings and percentage majority for passing resolutions) may be amended by a resolution of the majority of members (or, if authorised by the memorandum, by the directors).
Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?
No. If a business company is listed, the memorandum and articles need to be customized to comply with the appropriate exchange's listing rules/requirements.
What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?
Business companies are not generally required to maintain or file formal accounts unless they are a regulated entity and their accounts are to be submitted to the BVI Financial Services Commission. However a business company must maintain records that (a) are sufficient to show and explain the business company's transactions; and (b) will, at any time, enable the financial position of the business company to be determined with accuracy. Such records need not be made publicly available.
Is the entity permitted to determine its own financial year?
Yes. It must do so under the Economic Substance (Companies and Limited Partnerships) Act, 2018.
Is the entity subject to any statutory (external) auditor obligations?
There is no general audit requirement for business companies (unless it carries out regulated activities and is subject to regulation by the BVI Financial Services Commission).
Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?
A business company must have a registered agent that is located and licensed in the BVI. The registered agent provides incorporation and administration services (such as filing certain documents with the Registry of Corporate Affairs, submitting annual fees and maintaining a business company's registers) and often also provides registered office services.
A company secretary and other officers are permitted but not required.
What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?
Shares.
Are different classes of ownership interests possible? If so, what are some examples of different classes?
Yes, any class of share may be issued (including, for example, ordinary, common, preference, preferred, redeemable, convertible and deferred shares). Each class of share can have such economic, voting and other rights and /or restrictions as required, which are set out in the memorandum and articles. Subject to its memorandum and articles, a business company may issue a class of shares in one or more series.
What documentation is required for the transfer of ownership interests?
Shares are usually transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee. The memorandum and articles may contain transfer restrictions (e.g. approvals and/or pre-emption rights) that must also be complied with.
Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?
The transfer must be recorded in the register of members. Appropriate due diligence of a new member must be supplied to the registered agent within 15 days of a new member's name being entered into the register of members.
Are there any applicable stamp duties imposed when transferring ownership interests?
No except that stamp duty is payable on a transfer of shares by a business company if it (or any of its subsidiaries) has an interest in any land in the BVI.
How are shares issued? (including information on payment obligations, registration requirements)
The power to issue shares is normally vested in the board of directors of a business company. Shares are deemed to be issued when the name of the shareholder is entered in the register of members. Subject to the memorandum and articles, a business company may issue bonus shares, partly paid shares and nil paid shares (which are shares where no consideration has been paid). Shares may be issued for consideration in any form or a combination of forms including money, a promissory note, or other written obligation to contribute money or property, real property, personal property (including goodwill and know-how) services rendered or a contract for future services, provided that the consideration for a share with par value is not less than the par value of the share.
Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?
Non-cash payment:
Before issuing shares for (in whole or part) consideration other than money, the directors must (subject to the memorandum and articles) pass a resolution stating (a) the amount to be credited for the issue of the shares and (b) that, in their opinion, the present cash value of the non-cash consideration (and any cash consideration) is not less than the amount to be credited for the issue of the shares.
Contributions:
Capital contributions without any further shares being issued by a business company are possible.
Any requirements with respect to share cancellation, share repurchase and other capital reductions
In practice, the relevant provisions are usually set out in the memorandum and articles and the statutory provisions in the BVI Business Companies Act, 2004 are disapplied.
Generally (and subject to the memorandum and articles) -
Share cancellation:
- upon forfeiture of shares which are not fully paid for on issue;
- upon surrender of fully paid shares by a shareholder for no consideration;
- upon purchase/redemption/other acquisition of shares by a business company (unless the shares are to be held as treasury shares), subject to:
- the directors passing a resolution that the business company will, immediately after the purchase/redemption/acquisition, satisfy the solvency test (ie the value of the business company's assets exceeds its liabilities, and it is able to pay its debts as they fall due); and
- the consent of the relevant shareholder.
- upon redemption at the option of the shareholder (unless the shares are to be held as treasury shares).
Share repurchases: subject to: (a) the directors passing a resolution that a business company will, immediately after the repurchase, satisfy the solvency test (ie the value of the business company's assets exceeds its liabilities, and it is able to pay its debts as they fall due); and (b) the consent of the relevant shareholder.
Capital reductions: there are no specific rules restricting the circumstances in which capital may be reduced given there is no concept of capital for a business company but a distribution can only be made if, after the distribution, a business company will satisfy the solvency test. There are certain transitional provisions that apply to companies incorporated under the former companies act that may apply.
Any requirements with respect to distributions to shareholders?
Generally directors may authorise a distribution to members by a directors' resolution, provided the directors are satisfied on reasonable grounds that the business company will, immediately after the distribution, satisfy the solvency test (see above).
The memorandum and articles may contain additional provisions relating to distributions that must be complied with. There are certain transitional provisions that apply to companies incorporated under the former companies act that may apply.
Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?
Yes. The provisions in any shareholders' agreement must not contradict the memorandum and articles (the latter are filed with the Registry of Corporate Affairs and are publicly available). The rights, privileges, restrictions and conditions attaching to each class of shares contained in any shareholders' agreement relating to a business company must be stated in its memorandum and articles.
Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?
The annual fee of a business company is US$450 (if it is authorised to issue up to 50,000 shares) or US$1,200 (if it is authorised to issue more than 50,000 shares). Additional fees may be charged in relation to funds or business companies carrying out regulated activities.
What are the general corporate tax rates? (Specify if there is a national versus local distinction).
The BVI has no income tax, corporation tax, capital gains tax, inheritance tax, gift tax, wealth tax or any other form of direct taxation or withholding.
Summary of any specific matters, e.g. recent or prospective major legal developments
The Economic Substance (Companies and Limited Partnerships) Act, 2018 came into force on 1 January 2019 in response to the European Union's concerns about economic substance of entities doing business in the BVI. The legislation was enacted to mirror EU standards as well as OECD standards and created an obligation for business companies (and certain other legal entities) not tax resident outside of the BVI and that are carrying on relevant activities within the BVI to comply with economic substance requirements.
There are three conditions that may need to be satisfied in respect of these requirements:
- The relevant activity must be directed and managed in the BVI;
- In relation to the nature and scale of the relevant activity, there must be:
- An adequate number of suitably qualified employees physically present in the BVI;
- Adequate expenditure incurred in the BVI;
- Appropriate physical offices and premises;
- Where the relevant activity is IP business and requires the use of specific equipment, that equipment is located in the BVI; and
- The legal entity must conduct core income-generating activity in the BVI.
The BVI International Tax Authority has issued Rules on Economic Substance in the Virgin Islands to provide further guidance.