BVI Business Companies Act
Encyclopedia
The BVI Business Companies Act (No 16 of 2004) is a statute
of the British Virgin Islands
relating to the formation of all companies in the British Virgin Islands, both offshore companies and local companies. It replaced the extremely popular and highly successful International Business Companies Act
.
The decision to replace the International Business Companies Act was driven by two things. Firstly, there was a general perception that the older legislation was becoming a bit dated, and needed modernising. Secondly, the OECD and other multinational organisations had expressed concerns about ring-fenced tax regimes in tax haven
s, such as that under the older legislation and were putting jurisdictions under pressure to repeal them. The British Virgin Islands Financial Services Commission
dealt with both issues in a single legislative swoop.
The BVI Business Companies Act is actually based upon a New Zealand
statute (as opposed to the International Business Companies Act, which was based on Delaware
corporation law). Conscious of how widely the earlier legislation had been copied by other tax havens, the BVI Business Companies Act was drafted with a large number of forms and procedures which specifically tied it into the Territory's regulatory structure, thereby making it much harder to simply copy and enact.
The letters BVI were deliberately inserted as part of the branding exercise, and it was hoped that companies formed under the new legislations would be referred to as "BVIBCs". This would neatly merge the common acronym under the old legislation ("IBCs") and the common reference used in Hong Kong
, the which has the largest geographical concentration of British Virgin Island companies (where they are often referred to simply as: "BVIs").
Ultimately the phrase "BVIBCs" proved to be too much of a mouthful, and in the offshore financial industry, it is more usual to refer to entities formed under the Act as "BCs", or simply "BVI companies".
. These include:
Prior to the BVI Business Companies Act coming into force, it was possible to incorporate a company under two different statutes: the International Business Companies Act (Cap 291) and the Companies Act (Cap 285).
After the BVI Business Companies Act came into force on 1 January 2005, it was possible to incorporate a company under any of the three statutes. It was also possible for a company which had been originally incorporated under the International Business Companies Act or the Companies Act to adopt new constitutional documents
and voluntarily re-register under the BVI Business Companies Act.
After 1 January 2006, it was no longer possible to incorporate a company under the International Business Companies Act or the Companies Act, but companies which had been originally incorporated under those Acts continued to be regulated by them.
After 1 January 2007, all companies which had been originally incorporated under the International Business Companies Act were compulsorily re-registered under the BVI Business Companies Act. Detailed transitional provisions were enacted in Schedule 2 of the new Act to deal with discrepancies between the two sets of legislation.
It is proposed that after 1 January 2008, all companies which had been originally incorporated under the Companies Act will be compulsorily re-registered under the BVI Business Companies Act. Detailed transitional provisions have been enacted (also in Schedule 2 of the new Act) but it is likely that this will be further amended and modified.
s have proved particularly difficult to resolve.
passed new companies legislation which was nearly a word-for-word copy of the BVI Business Companies Act.
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
of the British Virgin Islands
British Virgin Islands
The Virgin Islands, often called the British Virgin Islands , is a British overseas territory and overseas territory of the European Union, located in the Caribbean to the east of Puerto Rico. The islands make up part of the Virgin Islands archipelago, the remaining islands constituting the U.S...
relating to the formation of all companies in the British Virgin Islands, both offshore companies and local companies. It replaced the extremely popular and highly successful International Business Companies Act
International Business Companies Act
The International Business Companies Act, 1984 was a statute of the British Virgin Islands which permitted the incorporation of International Business Companies within the Territory...
.
The decision to replace the International Business Companies Act was driven by two things. Firstly, there was a general perception that the older legislation was becoming a bit dated, and needed modernising. Secondly, the OECD and other multinational organisations had expressed concerns about ring-fenced tax regimes in tax haven
Tax haven
A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate....
s, such as that under the older legislation and were putting jurisdictions under pressure to repeal them. The British Virgin Islands Financial Services Commission
British Virgin Islands Financial Services Commission
The BVI Financial Services Commission is an autonomous regulatory authority responsible for the regulation, supervision and inspection of all financial services in and from within the British Virgin Islands, including insurance, banking, trustee business, company management, mutual funds business...
dealt with both issues in a single legislative swoop.
The BVI Business Companies Act is actually based upon a New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
statute (as opposed to the International Business Companies Act, which was based on Delaware
Delaware
Delaware is a U.S. state located on the Atlantic Coast in the Mid-Atlantic region of the United States. It is bordered to the south and west by Maryland, and to the north by Pennsylvania...
corporation law). Conscious of how widely the earlier legislation had been copied by other tax havens, the BVI Business Companies Act was drafted with a large number of forms and procedures which specifically tied it into the Territory's regulatory structure, thereby making it much harder to simply copy and enact.
Name
The name of the statute actually commences with "BVI". That statute is often mistakenly referred to as simply the "Business Companies Act" due to a common misinterpretation that the "BVI" is a description of the jurisdiction of enactment rather than actually part of the name.The letters BVI were deliberately inserted as part of the branding exercise, and it was hoped that companies formed under the new legislations would be referred to as "BVIBCs". This would neatly merge the common acronym under the old legislation ("IBCs") and the common reference used in Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, the which has the largest geographical concentration of British Virgin Island companies (where they are often referred to simply as: "BVIs").
Ultimately the phrase "BVIBCs" proved to be too much of a mouthful, and in the offshore financial industry, it is more usual to refer to entities formed under the Act as "BCs", or simply "BVI companies".
Features
The Act contains a number of specific features which are designed to make the British Virgin Islands more attractive as an offshore financial centreOffshore financial centre
An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....
. These include:
- considerably restricting the requirement for corporate benefitCorporate benefitThe interest of the company is a concept that the board of directors in corporations are in most legal systems required to use their powers for the commercial benefit of the company and its members...
- abolishing financial assistance in relation to company shares
- abolishing the concept of a share capitalShare capitalShare capital or issued capital or capital stock refers to the portion of a company's equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value...
in relation to company shares (and thereby en passant removing requirements relating to maintenance of capital and distributable reserves requirements for dividendDividendDividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s) - removing restrictions in relation to the declaration of dividendDividendDividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s - increasing the types of company that can be formed
- modernising the regime for registration of security interestSecurity interestA security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets...
s - the Act introduces statutory minority shareholder protectionsDerivative suitA shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are unique because under traditional corporate law,...
- companies are no longer required to have a stated corporate object, thereby obviating a number of difficulties relating to ultra viresUltra viresUltra vires is a Latin phrase meaning literally "beyond the powers", although its standard legal translation and substitute is "beyond power". If an act requires legal authority and it is done with such authority, it is...
and director's duties.
Transitional arrangements
The intention of the legislation was to eventually consolidate all Britith Virgin Islands company law into a single statute.Prior to the BVI Business Companies Act coming into force, it was possible to incorporate a company under two different statutes: the International Business Companies Act (Cap 291) and the Companies Act (Cap 285).
After the BVI Business Companies Act came into force on 1 January 2005, it was possible to incorporate a company under any of the three statutes. It was also possible for a company which had been originally incorporated under the International Business Companies Act or the Companies Act to adopt new constitutional documents
Constitutional documents
In relation to artificial persons, the constitutional documents of the entity are the documents which define the existence of the entity and regulate the structure and control of the entity and its members...
and voluntarily re-register under the BVI Business Companies Act.
After 1 January 2006, it was no longer possible to incorporate a company under the International Business Companies Act or the Companies Act, but companies which had been originally incorporated under those Acts continued to be regulated by them.
After 1 January 2007, all companies which had been originally incorporated under the International Business Companies Act were compulsorily re-registered under the BVI Business Companies Act. Detailed transitional provisions were enacted in Schedule 2 of the new Act to deal with discrepancies between the two sets of legislation.
It is proposed that after 1 January 2008, all companies which had been originally incorporated under the Companies Act will be compulsorily re-registered under the BVI Business Companies Act. Detailed transitional provisions have been enacted (also in Schedule 2 of the new Act) but it is likely that this will be further amended and modified.
Amendments
The Act has already been amended several times in its relatively brief life. Although some of the amendments relate to fine tuning legislation, and others relate to introducing new features (such as minority shareholder rights), a great many other amendments have been necessary to fix issues brought about by the transitional arrangements. Registration procedures for security interestSecurity interest
A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets...
s have proved particularly difficult to resolve.
Replications
Although the predecessor International Business Companies Act was widely copied by other offshore jurisdictions, it was assumed that the BVI Business Companies Act would not be similarly replicated, as the architecture of the legislation integrated it very closely with the systems and procedures of the British Virgin Islands corporate registry. However, in 2006 the Isle of ManIsle of Man
The Isle of Man , otherwise known simply as Mann , is a self-governing British Crown Dependency, located in the Irish Sea between the islands of Great Britain and Ireland, within the British Isles. The head of state is Queen Elizabeth II, who holds the title of Lord of Mann. The Lord of Mann is...
passed new companies legislation which was nearly a word-for-word copy of the BVI Business Companies Act.