The British Virgin Islands company law is the law that governs businesses registered in the British Virgin Islands. It is primarily codified through the BVI Business Companies Act, 2004, and to a lesser extent by the Insolvency Act, 2003 and by the Securities and Investment Business Act, 2010. The British Virgin Islands has approximately 30 registered companies per head of population, which is likely the highest ratio of any country in the world. Annual company registration fees provide a significant part of Government revenue in the British Virgin Islands, which accounts for the comparative lack of other taxation. This might explain why company law forms a much more prominent part of the law of the British Virgin Islands when compared to countries of similar size.
History
The first companies legislation in the British Virgin Islands was the Companies Act, 1884. However the great leap forward for company law in the jurisdiction occurred in 1984 with the passing of the International Business Companies Act, 1984. That legislation was passed specifically to try and promote the incorporation of offshore companies as a method of economic development in the wake of the cancellation by the U.S. of the double taxation treaty which had existed between the two countries prior to that time. The International Business Companies Act was enormously successful, and resulted in the registration of a large number of companies. However, in the early 2000s the British Virgin Islands came under external pressure to repeal statutes such as the International Business Companies Act which provided for "ring-fenced" taxation (i.e. entities which were exempt from taxation in the British Virgin Islands provided they did not engage in business within the jurisdiction). This led ultimately to the repeal of both the Companies Act and the International Business Companies Act and their replacement with the BVI Business Companies Act, which provided for equal tax treatment of all companies. The change had relatively little impact on incorporation rates as the British Virgin Islands imposes virtually no form of direct taxation.
Registering a company
In the British Virgin Islands, only a licensed registered agent can form a company.BVI Business Companies Act, section 6(2) It is not possible for a member of the public to do so. The principal reason for this is to reinforce anti–money laundering obligations under the Anti-Money Laundering and Terrorist Financing Code of Practice, 2008. Any person who wishes to form a registered company must do so through a licensed agent, and the agent is required (amongst other things) to obtain client due diligence (sometimes referred to as "know your client", or KYC) to comply with the regulations.Anti-Money Laundering and Terrorist Financing Code of Practice, Part III. In particular, regulation 17(1) provides: "For the purposes of this Code, the reference to "customer due diligence" refers to the steps required of an entity or a professional in dealings with an applicant for business or a customer in relation to a business relationship or one-off transaction in order to forestall and prevent money laundering, terrorist financing and other financial crimes."
Almost all companies formed in the British Virgin Islands are now registered under the BVI Business Companies Act (although a large number of existing companies were originally registered under the International Business Companies Act). In addition there are a small number of statutory corporations, most of which serve some kind of public function.For example, the British Virgin Islands Electricity Corporation is a statutory corporation formed under British Virgin Islands Electricity Corporation Act, 1978 Under the BVI Business Companies Act it is possible to register five broad types of company: Company limited by shares Company limited by guarantee and not authorised to issue shares Company limited by guarantee and authorised to issue shares Unlimited company authorised to issue shares Unlimited company not authorised to issue shares
In practice the vast majority of companies are registered as companies limited by shares.
Furthermore, when registering a company, the company may also further be registered specifically as: Segregated portfolio company Restricted purpose company A segregated portfolio company is a company that segregates the assets and liabilities of different classes of shares from each other and from the general assets of the company. All segregated portfolio companies are required to include the designation "(SPC)" within their name, and must comply with the Segregated Portfolio Company Regulations, 2005.SI No 96 of 2005 A restricted purpose company is a special type of company intended for use in bankruptcy remote bond issues, and which only has limited corporate capacity to undertake certain specific purposes.
Slightly unusually, in the British Virgin Islands the formation of a company does not involve the issuing of subscriber shares. Accordingly, when a company is incorporated it initially has no members. The registered agent has a statutory power to appoint the first directors of the company, and the first directors can then receive subscriptions and issue shares. However, until the first shares are issued the directors are personally liable for anything which they do in the name of the company.
BVI enjoys 0% Taxation, no auditing and no paid up capital requirement. With over half its income coming from the licensing of offshore companies and related services, the BVI is a significant global player in the offshore financial services industry. Once frequently labelled as a "tax haven", the territory has fought hard against the label in recent years, signing the Multilateral Convention on Mutual Assistance in Tax Matters in June 2013. Re-positioning itself as a responsible international financial centre and tax planning destination, the BVI has turned its attention to Asia-based clients.
Corporate personality
In the British Virgin Islands a company has separate legal personality from its members (unlike, for example, a partnership registered under the Partnership Act, 1996). The liability of the members of a company is limited to their shares or the amount of their guarantee.BVI Business Companies Act, section 80 Similarly, directors or officers of a company are not normally liable for the company's debts except insofar as they may otherwise be liable for their own conduct or actions.BVI Business Companies Act, section 30 The primary circumstances where liability may be imposed upon directors in relation to their acts as directors are (1) where the company has no members, (2) where a person acts as a director despite being disqualified, (3) where the director authorises payment of an unlawful distribution which cannot be recovered, (4) where the director is guilty of trading whilst insolvent, misfeasance or fraudulent trading, or (5) where the director undertakes personal responsibility or liability for certain actions.Williams v Natural Life Health Foods Ltd UKHL 17
Conversely, the assets of a company are regarded as belonging solely to the company and not the company's members. In exception circumstances the courts are prepared to "pierce the corporate veil" and treat the assets of the company as belonging to the members (or, conversely, treat the company's obligations as the obligations of the members), but the circumstances in which this will be done are rare and exceptional.Prest v Petrodel Resources Ltd UKSC 34
Corporate constitution
The corporate constitution of a private company registered under the BVI Business Companies Act consists of the memorandum and articles of association. Although these are technically two separate documents, and the companies legislation contains detailed provisions at various points as to what provisions should appear in the memorandum and which should appear in the articles, for all intents and purposes the documents are co-joined and filed as a single continuous document.
The memorandum and articles of association of a company are available for public inspection at the Companies Registry. The memorandum and articles of association can normally be amended by a simple resolution of the members and usually (subject to certain minor limitations) by a resolution of directors,BVI Business Companies Act, section 12 although some companies include restrictions on this process within their corporate constitution.
Any amendment to the memorandum or articles normally only becomes effective when filed at the Companies Registry.BVI Business Companies Act, section 13(2) In exceptional circumstances the court has power to order that an amendment should take effect at an earlier date (but not earlier than the date of the actual resolution which was passed approving the amendment).BVI Business Companies Act, section 13(5)
Where the company is formed as a joint venture between two or more parties, or where there is a private equity investor, it is quite common for a company's constitutional arrangements to also be regulated under a shareholders' agreement. However shareholders' agreements are not publicly filed in the British Virgin Islands. Furthermore, various matters are required by law to be regulated in the memorandum of association of the company,BVI Business Companies Act, section 9 irrespective of the provision of any shareholders' agreement.
Statutory corporations do not have constitutional documents in the same sense that private companies do. In practice their constitution usually comprises the statute or charter, together with the internal by-laws of the company. In some cases the by-laws are issued by way of subsidiary legislation.See for example the British Virgin Islands Electricity Corporation By-laws Regulations, 1985 (SI No 31 of 1985)
Corporate governance
The business and affairs of a British Virgin Islands company are managed by its board of directors.BVI Business Companies Act, section 109 The board must consist of one or more persons, and these may be individuals or companies. Directors owe strict duties of good faith to exercise their powers for a proper purpose and in the best interests of the company.BVI Business Companies Act, section 121 In relative terms, directors are comparatively powerful under British Virgin Islands law. In most cases directors can appoint further directors and amend the company's constitution. There are extremely few matters of corporate governance whereby the board is required to obtain the approval of the company's members.
The members of the company are legally the owners of the company. Although they do not have the power to dictate to the directors how the company should be managed,Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame 2 Ch 34 they have the power to appoint and remove the board, and through this power exercise indirect control. Resolutions may be passed by the members formally or informally pursuant to the Duomatic principle. Members typically operate by a simple majority vote (there being no statutory concept of "special resolutions" in British Virgin Islands law any more), although there are special statutory provisions to protect minority shareholders against "unfair prejudice" on the part of majority shareholders,BVI Business Companies Act, Part XA and this is largely based upon unfair prejudice in United Kingdom company law.