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International Business Companies
I. Introduction
III. Anatomy of an International Business Company:
The following is a brief description of IBCs, its key governing
documents, and the various roles and the types of structures which may
be established.
III(a). Formation Documents:
The formation documents for an IBC, which
will be prepared and filed by the Registered Agent, are the Memorandum and
Articles of Association (MAA).
The Memorandum establishes the basic
structure of the IBC including the name, the purposes for which the company
is formed, authorized capital, details on the shares which may be issued
including their par value, denomination, classes and the rights attached,
and any other matters which affect the basic existence of the company. As
to purposes, these may be specified in some detail or, more typically, may
be stated to include any business activity which is not prohibited by the
law of the BVI.
The Articles of Association are essentially the by-laws of the company
which govern relations between the various members of the company. They
deal with the procedures for calling meetings of shareholders, passing
resolutions and transferring shares including any restrictions which may
apply. They also detail any specific powers or restrictions on the powers
of the directors or shareholders of the company, and generally serve as
a "rulebook" for operating the company. The MAA can be changed after
incorporation by passing director(s') or shareholder(s') resolutions.
Once the original MAA are filed and the proper fees paid, the Registrar
of Companies will issue a Certificate of Incorporation, which specifies the
name of the IBC, the date on which it was incorporated, and its Company
Number. The Certificate of Incorporation constitutes evidence of the
company's existence. These documents are the only documents which are
required to be on the public file at the Registrar of Companies.
III(b). Capital Structure:
The IBC statute and BVI Law
place almost no limits on the nature, classes, rights, amounts or
denominations of share capital which can be established. However, a
number of basic concepts need to be understood.
Authorized Capital: The Authorized Capital is the
amount and number of shares which the Company may issue. There is no
obligation to issue any more than one share to one shareholder, and it is
up to the directors to decide what shares shall be issued and when. The
Authorized Share Capital is defined by an amount (typically US$50,000),
divided into a number of shares, each of which has a particular value
(e.g. 50,000 shares of US$1 par value each). The Authorized Capital may be
denominated in any currency and in multiple currencies. Note that if the
authorized capital is more than US$50,000, the government fee on incorporation
and annual renewals increases to US$1,000.
Issued Capital : The issued capital is the amount and value
of shares which are actually granted to and paid for by shareholders. Each
issued share gives the shareholder certain rights in terms of voting,
receipt of dividends and ownership of a proportion of the IBC. The
proportion of the IBC owned by the shareholder and the extent of his rights
depends on how many shares are issued to all shareholders and the underlying
value of the company, not on the stated par or nominal value of the shares (e.g.
a company worth US$1 million may have two shareholders each with one share
of par value US$1, yet each shareholder owns 50% of the company, or
US$500,000 in asset value).
Par Value or Nominal Value: This is the amount notionally
attributed to each share. It is the minimum amount which must be paid
for each share. However, it is possible under BVI Law to issue shares
without par value, in which case there is no minimum price and no
authorized capital. Shares with no par value are simply worth as much
as the company, divided by the number of shares issued. The decision to
employ the concept of par value is generally dependent on shareholder
preferences and how they wish the balance sheet of the IBC to appear,
but the vast majority of IBCs do create shares with a par value.
Par value may be denominated in any currency or fraction of a currency
unit, and it is also possible to have different classes of shares
denominated in different currencies.
Issue or Subscription Price: This is the amount actually paid
for each share, and can be any amount in excess of the par value. The
difference between par value and issue price is called the share premium
or surplus, which would be shown as such on the balance sheet. Shares
in IBCs must be paid for when they are issued, but need not be paid for
in cash. The issue price can be satisfied by the grant of a promissory
note, by the transfer of intangible property to the company, or in
consideration for performing services for the IBC.
Classes of Shares: Shares may be divided into an unlimited
number of classes, each of which give different rights to their respective
shareholders. One class may be created to give a
shareholder a preferential right to receive dividends. Another class
may have special voting rights or no voting rights. Some classes of
shares may be redeemable (i.e., they can be re-purchased by the company),
others may not. Typically multiple classes are used where the
shareholders have agreed different economic terms between them. For
example, a typical mutual fund will have management shares, which enable
the sponsor to control the activities of the fund and investor shares, which
give the investors all of the rights to participate
in the profits and gains of the company, but no say in its management.
Two basic principles however apply to different classes of shares,
namely: a) all holders of shares of the same class must have identical
rights; b) the rights of a particular class (even those which have no
voting rights) cannot be altered in a way which adversely affects their
rights, without the consent of a majority of the shareholders of the class.
III(c). Ownership:
Ownership of the IBC is represented by the
holding of shares. Shares may be registered if desired, which means that
a specific person or entity is entered in the records of the IBC as
owning the shares (whether or not he holds the share certificates). In
such cases, transfers can only be effected by executing an instrument or
transfer and delivering it to the company with the relevant share
certificate.
Alternately, shares can be issued as bearer shares, which, like cash,
are transferable by simply handing the certificate to the new owner.
Whoever holds the bearer certificate is deemed to be the owner for all
purposes.
A holding of the shares gives certain ownership rights in
relation to the IBC as defined in the Memorandum and Articles of Association,
but does not give the holder any ownership interest in particular assets
of the IBC (e.g. a shareholder in IBM cannot ask to have one of their
computers delivered to him as a dividend). Ownership of shares in an IBC
is not subject to any form of taxation in the British Virgin Islands, and
there are no requirements to publicly disclose the owners of an IBC.
The owners, by resolutions passed at general meetings, or by written
resolutions signed by them, decide certain major policy matters affecting
the IBC, as defined in the Memorandum and Articles of Association. A shareholder
can be an individual or a corporate entity, resident anywhere in the world.
III(d). Management:
The day to day management of the IBC is undertaken
by the directors. They decide upon and implement the business policies
and strategies of the IBC. Unless otherwise specified in the Articles of
Association, each director has full power to represent the IBC, and one
director's signature is enough to sign a contract or other legal document
enforceable against the IBC. Directors are elected by the shareholders and
may or may not be required to submit for re-election at regular periods.
An IBC may appoint executive officers as well,
such as President, Vice President, Treasurer and Secretary. Whether
or not to do so, and what the powers of officers should be, is a matter
to be decided by the directors. Directors can hold meetings anywhere in
the world and need not all be present in the same room (e.g., a meeting
can be held over the telephone or by video conference). Resolutions
can also be passed by signing written documents. A director can be
an individual or corporate entity, resident anywhere in the world.
III(e). Operations:
There are no particular regulations or requirements
regarding the day to day operations of a BVI IBC. Certain matters will
require resolutions to be passed by the directors or the shareholders, but
typically these will only include matters such as the purchase of real
estate, the granting of charges or security interests, or matters affecting
the basic structure of the IBC.
III(f). Confidentiality:
Apart from the Memorandum and Articles of
Association, there is no obligation to file on public record any other
details or information relating to the IBC. Filing of details of
directors, shareholders and charges is available, if required for business
purposes (bank lenders often insist on this). The Registered Agent will,
in accordance with the BVI Code of Conduct for Registered Agents, need
to have information and references regarding all of the owners and directors
of the IBC. This information is kept confidentially in the offices of the
Registered Agent, as part of the records of the IBC. In limited
circumstances the Registered Agent may be required to disclose this
information, but only where the government makes an order in connection
with criminal proceedings, or pursuant to an order of the Court,
which can generally only be obtained in cases of fraud or other serious
wrong doing. However, by virtue of pooling assets within an IBC, the ultimate
ownership of those assets may be shielded, whether for business or
privacy purposes, so that the name of the owner of the IBC does not
appear on any public records in relation to those assets.
Additional levels of privacy can be obtained by having nominee
shareholders (typically another BVI company controlled by a Registered
Agent) in whose name the shares are registered. The nominee will sign a
document confirming that they hold the shares for the true owner. In this
way the true owner's name need not appear on any documents required to be
signed by the shareholders, which may need to be given to
third parties. Similarly the Registered Agent may provide an individual
or a company to act as a director, so that the owner's name need not
appear on any contracts, letters or other documents issued to third parties.
III(g). Limited Liability and Asset Security:
An IBC is a separate
legal person, which has full capacity to enter into any business transaction
that an individual can lawfully undertake, subject to the restrictions mentioned
below. An IBC is a limited liability
entity, so that in the vast majority of cases, neither the shareholders
nor the directors are responsible personally to third parties for any
liabilities of the IBC. Individuals may still be responsible for their
own acts, such that, for example, an IBC cannot be used to shield a person
from a fraud that they commit. In addition, many people use IBCs for asset
security purposes in regions where there is social, political or economic
instability. An IBC holding an owner's assets in such a region can protect
the assets from seizure or unwarranted loss of the assets.
I. Introduction to the International Business Company
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