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BVI Business Companies Act
Workshop
Tortola
Richard Carpenter
Consultant to the
BVI Financial Services Commission
19th July, 2007
Financial Services Commission
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What is a Company?
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How Did Concept of Company
Develop?
The concept of a company was created to
provide a way for individuals to associate
together to carry on a business or trade in an
efficient way.
Until then business carried on by:
• Individuals, or sole traders,
• Partnerships, or
• Groups of associated individuals
But many disadvantages
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Some Disadvantages of
Partnerships and Sole Traders
• Personal liability for all debts of
business
• Difficulty in raising finance to fund
business [eg transferability of interest]
• Difficulty in managing business,
particularly if many partners
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Company limited by shares (1)
Most common type of company - has following features:
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Company is separate legal person or entity distinct from
members
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Company has one or more shareholders who own company in
proportion to number of shares they hold
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Liability of members limited to amount they have agreed to pay
for shares – otherwise not liable for debts of company
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Ownership and management roles split, so although
shareholders own company, they do not manage it
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Company managed by its directors, generally appointed by
shareholders
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Position of Shareholders
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Shareholders do not own assets of company, but a share usually
entitles them to a share in any surplus if the company is wound
up
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Shares in a company may be sold or transferred by shareholder,
although consent of directors may be required
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Shares may be restricted to have limited rights, eg limited or no
voting rights.
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Shareholders, although owners of company, cannot interfere in
management of company by directors – their influence lies in
being able to appoint and remove directors
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Position of Directors
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Director owes certain duties in way he manages the
company, including:
• must act honestly, in good faith and in what director
believes is in best interests of company,
• must exercise powers for proper purpose
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These duties are owed to company not to shareholders
[Duties covered in more detail later in presentation]
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Other types of company and
business organisation
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Company limited by guarantee
Unlimited company
Hybrid company
Partnership [may be formal or informal]
Limited partnership
Note, company must be distinguished from business or
trading name. An individual, partnership, company or
collection of individuals may trade under a name that is
different to his, its or their name, or in the case of a
partnership, the firm name.
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Memorandum and Articles
Every company must have a memorandum of
association and most companies required to have
articles of association which are its constitution
• Memorandum can be considered the “charter” of
the company
• Articles are the company’s by-laws or rules,
covering:
 how company governed
 relationship between members
 relationship between members and directors
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The Companies Act
[Cap. 285]
Time to Retire a Dinosaur?
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Background
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Companies Act came into force 2 March 1885
First modern companies legislation in UK
passed in 1844
This was replaced in a862 - BVI Companies
Act probably based on UK 1862 Act
Since then UK has replaced Companies Act
five times: 1908, 1929, 1948, 1985 and 2006
BVI Act amended a number of times
Essentially framework based on UK company
law as it existed in century before last
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CA - Some Disadvantages (1)
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Difficult to follow and understand
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Inflexible
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Unnecessary and burdensome requirements for
registration of documents at Companies Registry
Strict and inflexible capital requirements, reduction of
capital requires Court Order
Restrictions on business – potential problems if
company acts “ultra vires”
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CA - Some Disadvantages (2)
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No registration of charges at Companies Registry
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Inadequate protection of members
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Burdensome and unnecessary administrative requirements,
eg annual general meeting
No express recognition of circular resolutions or electronic
communications
Two members required
In summary - not suitable for modern business environment
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Benefits of the New Act
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Objectives of BCA
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To develop modern companies legislation [the
corporate legislation of many countries both
on-shore and off-shore was reviewed]
To be compliant with international standards
To ensure no difference between local and
international companies, designed to be
suitable for both
To use clear drafting style
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BVIBC Act – Objectives (2)
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To allow for ease of incorporation and use
Should be no unnecessary filings or
administrative obligations
Should provide maximum flexibility for use
of BCA companies
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BCA Advantages
Advantages to local businesses include:
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Flexible and adaptable – can structure company to meet
needs of business and owners
Single member companies permitted
Unless members decide otherwise, no restrictions on
business and activities that be carried on by BCA
company [as long as lawful]
Company may issue many different types of shares
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BCA Advantages (cont.)
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No need to keep complex accounting records that keep track
of “capital”, “share premium” etc although optional
No restriction on payment of dividends, or making of other
distributions, to members as long as company solvent after
distribution. No Court application required to reduce capital
Governance and administration much more straightforward,
for example:
• Written resolutions of members and directors permitted
• Members’ and directors’ meetings can be held by
telephone, over Internet
• No requirement for annual meeting
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BCA Advantages (cont.)
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Clear record keeping requirements, types of records
and to be kept at office of registered agent – important
aid to resolving any disputes
Duties and obligations of directors clearly set out [not so
under Companies Act]
Registration of charges and mortgages at Companies
Registry governs priority – attractive to banks and other
lenders
If necessary, companies may merge or consolidate or
enter into arrangements
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BCA Advantages (cont.)
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Protection for members who dissent from merger,
consolidation and arrangement [entitled to be bought
out for fair value of shares]
Members have a number of remedies against directors
and company, where contravening BCA, memorandum
or articles
Member may apply to Court where considers that his
interests are being unfairly prejudiced
More straightforward provisions for voluntary liquidation
than under Companies Act
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Important Aspects of
New Act
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It is important that members and directors of CapCos
familiarise themselves with the major differences between
the Companies Act and the BCA
The following are critical aspects of the new Act that are
likely to impact on CapCos:
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Every CapCo will be re-registered under, and
become, a BCA company either:
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Voluntarily, or
Automatically on 1 January 2008
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Note: still same company
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Every company should consider carefully whether
in its best interests to re-register voluntarily
[covered later in presentation]
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Every BCA company must have registered agent
Every BCA company must have registered office – this can,
and usually is, office of registered agent, but this is not
required
Every BCA director must comply with duties and obligations
under the Act [see User Guide 4 on Directors and their
Responsibilities]
Directors may become personally liable if they permit
company to trade whilst insolvent.
Company must not pay dividend to shareholders or make a
distribution to members if dividend or distribution would make
company insolvent
Only a registered agent can incorporate a new company
Only a registered agent can file documents and pay fees on
behalf of a company
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Registered Agent
and
Registered Office
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Principal Requirements
Every BCA must have a registered agent.
Registered agent must be a company licensed by the
Financial Services Commission as a company
management company or as a Class I or III trust
company
Every BCA must have registered office:
• Not necessary to be provided by licensee
• But only licensee can charge for this service
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Why is a Registered Agent
Required?
• Access to statutory records
• Maintenance of records
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Benefits of Registered Agent
to Company
Requirement enables BVI to comply with international standards,
but many benefits to company, its directors and owners:
• RA ensures company kept up to date [fees etc] and
minimise risk of strike off
• RA provides expertise concerning BCA, ensuring
compliance with Act
• RA ensures timely filing of correct documents, saving
delays and expense
• RA acts as point of contact with Registry, ensuring
directors can get on with their business
• RA accepts service of important documents, ensuring
company and directors get to know about them
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DIRECTORS
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Requirement for Directors
Every BCA company must
have at least one director
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Who is a Director?
Director, includes a person occupying or
acting in the position of director by whatever
name called
Insolvency Act has a different definition, which
includes a shadow director
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Role of Directors
Directors pivotal to operation of company
Act provides [s. 109(1)]:
“The business and affairs of company shall be managed
by, or under the direction or supervision of, the directors
of the company”
In order to enable the directors to undertake their role,
the Act gives them “all powers necessary for managing,
and for directing and supervising, the business and
affairs of the company”
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Companies Without
Directors
Section 109(6):
“If at any time a company does not have a
director, any person who manages, or who
directs or supervises the management of,
the business and affairs of the company is
deemed to be a director of the company for
the purposes of this Act”
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Duties of a Director
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To act honestly and in good faith and in what
he believes to be the best interests of the
company [s. 120(1)]
To exercise powers for a proper purpose [s.
121]
Not to act, or agree to the company acting in
contravention of the Act or the M&A [s. 121]
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Standard of Care
Section 122 sets out standard of care to be exercised by
a director when exercising powers or performing duties.
The director must exercise the care, diligence, and skill
that a reasonable director would exercise in the same
circumstances taking into account:
• the nature of the company;
• the nature of the decision; and
• the position of the director and his
responsibilities.
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Common Misconceptions
I’m only a nominee director.
I was only acting on instructions.
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Disclosure of Interest
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Director must immediately after becoming aware of
interest in transaction entered into, or to be
entered into, disclose interest to the board (every
member of the board)
Does not apply if transaction or proposed
transaction in ordinary course of business
Failure to comply does not affect validity of
transaction, but is an offence
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Avoidance of Transactions
Transaction entered into by company in which
director is interested is voidable unless:
• disclosed; or
• not required to be disclosed
Note fair value exception and protection of
third parties’ interests
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Who May be a Director?
Who may be a director?
Any person not disqualified by the BCA, ie:
• minor
• person disqualified or restricted under Insolvency
Act
• undischarged bankrupt
• person disqualified by the M&A
Note “person” includes a corporate body.
Any person who although disqualified acts as a director is
deemed to be a director
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Appointment of Directors
First director(s) must be appointed by registered agent
within 6 months of incorporation
Thereafter, directors usually appointed by members]
Term of appointment – as specified in resolution
appointing him
NOTE: Director cannot be appointed unless he has
consented
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Removal of Directors
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Resolution of members passed at a meeting called for
the purposes of removing him (notice of meeting must
state purpose of meeting)
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Written resolution passed by a majority of at least 75%
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Subject to M&A by resolution of directors
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Resignation of Directors
• Director may resign by giving written
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notice [s. 115(1)]
Resignation takes effect from date
notice received by company
Director must resign if he becomes
disqualified to act
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Liability of Former Directors
Director who vacates office remains
liable in respect of his acts, omissions
or decisions whilst he was a director.
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Validity of Acts of Directors
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Note that the acts of a person are valid
notwithstanding that:
The person’s appointment as director
was defective
The person is disqualified to act as
director
[s. 117]
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Re-Registration of
Companies Act
Companies
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Key Points
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Every CapCo will be re-registered under BCA
Re-registered CapCo is still the same company
In particular, re-registration:
• Does not affect its legal identity
• Does not affect its assets, rights or obligations
• Does not affect the commencement or
continuation of proceedings
Re-registered CapCo ceases to be governed by
Companies Act
Subject to transitional provisions, re-registered
CapCo becomes governed by BCA instead
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Methods of Re-registration
Re-registration of Companies Act company
under the BCA may be:
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Voluntary, on application of company on or
before 30 November 2007; or
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Automatic, on 1 January 2008, if company
does not apply to re-register voluntarily
within time period allowed
There are significant differences in way BCA
applies to voluntarily and automatically reregistered CapCos
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Voluntary Re-Registration
• Must apply to Registrar by 30 November 2007 (time for
Registry to process before 1 January 2008)
• Certified copy of resolution of members must be filed
• Must appoint person qualified under section 91(3) of BCA
who will become registered agent on re-registration
• New registered agent must sign application and new
memorandum & articles
• Memorandum must contain details of first registered agent
of company
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Voluntary Re-Registration CapCos
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No reduction of capital (for purposes of CA) if:
 Resolution to adopt new memorandum passed
by members unanimously
 No. of shares in issue not reduced
 Max. no. of shares co. authorised to issue equal
to or greater than no. of shares into which capital
divided under CA
 Par value of shares remains the same
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Effect of Voluntary Reregistration
Company becomes “fully-fledged”
BCA Company
Voluntarily re-registered company will
be able to take full advantage of BCA
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Automatic Re-Registration (1)
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1 January 2008, all CapCos [that have not been
voluntarily re-registered] will be automatically reregistered as BVIBCs & CA repealed
If Registry has not determined application to voluntary
re-register, automatically re-registered on 1 January
2008
No certificate of re-registration may be issued after 31
December 2007
CapCo re-registered automatically as company of same
type (eg company limited by shares, company limited by
guarantee etc)
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Automatic Re-Registration (2)
• Retain own M&A
• Certain provisions of CA continue to
apply
• No certificate of re-registration issued,
but may apply ($25.00 fee)
• Must appoint a person qualified under
section 91(3) of BCA as registered
agent within 2 months of re-registration
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Why two types of registration?
M & A of CapCo not compatible with new Act:
• Requirements for memorandum under BCA
different from those under Companies Act
• BCA does not recognise capital, which is
fundamental under Companies Act
• No. of default provisions in BCA (ie subject
to Memorandum ad articles and members
will not have considered these when
agreeing memorandum and articles
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Why two types of registration?
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Not intention to force all companies to go to trouble
of drafting new memorandum and articles
Therefore BCA enables automatic re-registration
But automatically re-registered company will keep
existing Memorandum and articles and cannot be a
“fully fledged” BCA company – it must be subject to
special transitional provisions
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Part VI Transitional
Provisions
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Automatically re-registered CapCos subject to Part VI
transitional provisions
Designed to ensure M&A still works for company
Continues provisions of CA relating to:
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Requirements for memorandum
Directors with unlimited liability
Reduction of capital
General meetings
Notice to be given of increase in capital
Fees based on capital
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Disapplying Part VI
Former CapCo may elect to disapply Part VI after
re-registration by filing:
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Application to disapply transitional provisions
New memorandum and articles that comply
fully with the BCA
Former CapCo will become fully fledged BCA
Company
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User Guides
1.
2.
3.
4.
5.
6.
Incorporating a BCA company limited by
shares
Company names
Memorandum and articles of association
Directors and their responsibilities
Striking of and liquidation
Re-registration of CapCos under BCA
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