As a
The purpose of this article is therefore to summarise some of the differences, which arise most frequently on transactions.
The incorporation process
At the time of incorporation, a BVI company will not have any members or directors. Instead, the company is incorporated by the registered agent (and all BVI companies must have a BVI resident and licensed registered agent), who is responsible for appointing the first directors. Once appointed, the first directors will issue the first shares to the company’s members. Subject to any restrictions to the contrary provided for in the memorandum and articles of association (Mem & Arts), the Mem & Arts can be amended by either a resolution of members or a resolution of directors.
The only limitation to this is where the intended amendment is:
l to restrict the rights or powers of the members to amend the Mem & Arts;
l to change the percentage of members required to pass a resolution to amend the Mem & Arts; or
l in circumstances in which the Mem & Arts cannot be amended by the members.
Significantly, amendments to the Mem & Arts only take legal effect on the date of filing at the Registry of Corporate Affairs. Therefore, on transactions involving a change to the Mem & Arts, it is essential that the amended Mem & Arts are filed at closing and not at a later date after closing.
Share capital
There is no legal concept of share capital in the BCA. Instead, BVI companies are authorised to issue either a given number of shares or an unlimited number of shares (and subject to any limitations to the contrary in the Mem & Arts, the directors have an inherent authority to issue all the authorised shares and to increase the number of shares that a company is authorised to issue).
Given this, it therefore follows that the BCA has no concept of reducing or increasing share capital. Where a share has a par value, the consideration paid for that share must be at least equal to its par value.
There is no requirement to demonstrate the corporate benefit to be derived from a particular course of action and the BCA provides that subject to anything to the contrary in the BCA, in any other enactment or the Mem & Arts, a company has, irrespective of corporate benefit, full capacity to carry on or undertake any business or activity, do any act or enter into any transaction.
In respect to financial assistance, there are no statutory restrictions on the giving of financial assistance and the BCA expressly provides a statutory confirmation that BVI companies can provide financial assistance. And while the BCA contains provisions relating to statutory pre-emption rights, these provisions only apply where the Mem & Arts expressly provide that they apply but not otherwise. On joint venture or private equity transactions, it is usual for the parties to expressly set out in the Mem & Arts the terms commercially agreed for any anti-dilution rights.
On the subject of dividends or distributions, the BCA provides that, subject to the Mem & Arts, the directors may, by resolution, authorise a distribution to members at such time and of such an amount as they think fit if they are satisfied, on reasonable grounds, that the company will, immediately after the distribution, satisfy a solvency test. Significantly, there are claw-back provisions in the BCA which apply where a distribution is made at a time when the company did not satisfy this solvency test.
Members’ resolutions
The BCA makes no distinction between ‘ordinary’ and ‘special’ resolutions. Instead, a resolution of members is passed if approved by a majority in excess of 50%, or, if a higher majority is required in the Mem & Arts, that higher majority of votes of those members entitled to vote and voting.
Under the BCA, a deed is validly executed if it is either:
l sealed with the seal of the company and witnessed; or
l is expressed to be executed as a deed and it is signed by a director or by a person acting under the express or implied authority of the company. This therefore enables deeds to be executed under hand by the signature of one director.
Directors’ duties
The duties owed by directors of BVI companies are provided for in the BCA and codify the duties of skill and care owed at common law. However, the BCA also extends the traditional principles of directors’ fiduciary duties in three circumstances and provides that:
l a director of a company that is a wholly-owned subsidiary may, if expressly permitted to do so by the Mem & Arts, act in a manner which is in the best interests of that company’s holding company even though it may not be in the best interest of the company;
l a director of a company that is a subsidiary but not a wholly-owned subsidiary, may, if expressly permitted to do so by the Mem & Arts and with the prior agreement of the other members, act in a manner which is in the best interests of that company’s holding company even though it may not be in the best interest of the company; and
l a director of a company that is carrying out a joint venture may, if expressly permitted to do so by the Mem & Arts, act in a manner which is in the best interests of a particular member, even though it may not be in the best interest of the company.
Other than a company search, there is no information publicly available on company books and records.
Members are entitled to request to inspect (and copy) certain books and records, although the directors may, if they are satisfied that it would be contrary to the company’s interest, refuse to permit, or limit, the inspection.
With the exception of unlimited companies which are not authorised to issue shares and foreign companies, there is no requirement to file an annual return.
Similarly, there is no requirement for a BVI company to appoint an auditor or file audited accounts.
However, BVI companies are required to keep financial records which are sufficient to show and explain the company’s transactions; and which will, at any time, enable the financial position of the company to be determined with reasonable accuracy.
Simon Schilder is a partner at Ogier in the