An overview of Jersey company law05 Apr 2011
The Companies (Jersey) Law 1991 (the "Law") came into force on 30 March 1992. Since that date, the Law has been periodically amended and updated so as to ensure that Jersey company law is modern and flexible. This briefing summarises some of the provisions of the Law.
Types of company
Under the Law, it is possible to create the following types of company in Jersey:
- limited companies, with par value or no par value shares;
- guarantee companies, with members whose liability is limited to amounts committed by them by way of guarantee;
- unlimited companies, where the liability of members is unlimited; and
- cell companies, which provide for the segregation of assets and liabilities within different cells.
A company can have both limited and unlimited members but cannot issue both par and no par value shares. A guarantee company must consist of only guarantee members.
The corporate capacity of a Jersey company is unlimited, the ulta vires doctrine having been expressly abolished by the Law.
Companies may be formed as either public companies or private companies. A company will be a public company if so stated in its Memorandum, or if it had more than 30 members on 30 March 1992 and has not since changed. A private company's Memorandum must state that it is a private company. Other than in limited circumstances, a private company will remain as such until it has more than 30 members or until such time as it circulates a prospectus, in which case it is treated as though it were a public company.
In order to form a Jersey company, the subscriber members must submit the Memorandum and Articles of Association to the Jersey registrar of companies. A public company must ordinarily have a minimum of 2 members, whilst a private company can have a single member. In the event that a public company carries on business without having at least 2 members (who may be nominees for a single beneficial owner) for more than 6 consecutive months, then the sole member can become liable for the company's debts. A public company may, however, be a wholly owned subsidiary of a single holding company.
The Memorandum submitted by a new company must be signed by the subscribers and must contain details such as the company name, whether it is a private or public company and the name and address of the subscribers. The Articles of Association must also be signed by the subscribers. Either document may be submitted in English or French. The Law provides that, unless expressly excluded, a standard set of Articles of Association will apply, as prescribed by the Companies (Standard Table) (Jersey) Order 1992. A company may choose to adopt such standard Articles of Association in full, in part or (as is usually the case) exclude them entirely and replace them with Articles tailored to the company's requirements.
Together, the Memorandum and Articles of Association form the constitution of the company. They can only be amended by special resolution.
Forming Jersey companies is a fairly straightforward process and is normally completed within 2 business days of application (or on the same day for an additional fee). Once incorporated, a certificate of incorporation will be provided by the registrar of companies, which constitutes conclusive evidence of incorporation.
The registrar may refuse to authorise the formation of a company if it is considered not to be in the public interest.
Before incorporating a new company, or approving a company's change of name, a search of the companies registry should be undertaken. Jersey companies are not permitted to have the same name or a confusingly similar name to another company, unless the specific authority of the registrar of companies is provided. The Law allows for the registrar of companies to refuse to register certain names in the event they are considered offensive, inappropriate or provide a misleading description of the company's activities or status.
The name of all limited companies registered in Jersey must end with "Limited", "Ltd", "avec responsabilité limitée" or "a.r.l.". A public company may choose (but is not required) to use "public limited company", "PLC" or "plc".
Jersey companies may be incorporated with a share capital denominated in any currency, may allot shares at different prices, convert par value shares into no par value shares (and vice versa) and accept a member with wholly or partly paid up shares.
Furthermore, a company can, by altering its Memorandum, increase its share capital, consolidate or subdivide shares, convert stock into shares of any denomination, convert shares into different currencies or cancel shares. Companies may also issue fractions of shares, which will be treated in accordance with the company's Articles of Association. If shares in a par value company are allotted at a premium, a share premium account must be created.
Different rights may be attached to different classes of shares and share rights may be varied in accordance with the Articles of Association of the company or, in the absence of specific provisions, with the consent of not less than two thirds of shareholders. A change in the rights attached to a class of shares will take place wherever such change reduces the liability of the relevant class of members to contribute to the company or increases the benefits of the class of members. In the event that members object to a variation in share rights then, providing the members hold (either individually or together) not less than one tenth of the shares, the members may apply to the Royal Court to have the variation cancelled. Additional remedies are available to minority shareholders under Article 143 of the Law, which is mentioned further below.
The Law permits companies to create, issue or convert shares as redeemable shares providing that, at all times, at least one non-redeemable share also remains in issue. A company may also hold shares as treasury shares providing there is at least one non-redeemable issued share in the company.
Shares may be forfeited or surrendered and, with the confirmation of the Royal Court, a company may reduce its share capital. Safeguards are contained in the Law in order to protect the interests of creditors. Subject to the passing of a special resolution by the company, the provision of a solvency statement by the company's directors and certain other legislative safeguards, a Jersey company may purchase its own shares.
Registered office and records
A company must have a registered office in Jersey and must include its company name and registered office in all business letters, correspondence, notices, negotiable instruments and letters of credit. Every company, other than a company in the course of a winding up, is required to deliver an Annual Return before the end of February in each year detailing the names and addresses of registered members, and late filing fees are payable in the event of a delay.
Every company must maintain a register of members at the registered office of the company, or such other place in Jersey as the company may specify. The register should be open to inspection by the members of the company, without charge, during normal business hours.
Minutes of all directors' and shareholders' meetings and a register of directors and secretaries must also be maintained by a company. In each case, records held by a Jersey company may be kept in any form (whether electronic or hard copy) provided that such information can be reproduced in an intelligible manner and steps are taken to safeguard the information.
A private company must have at least one director, a public company at least two. Directors must be over 18 years of age. There is no requirement under the Law for directors appointed to Jersey companies to be resident in Jersey or to hold shares in the company. There may, however, be reasons why this is necessary or advantageous.
A Jersey company may appoint a corporate director, providing that such corporate director is regulated to conduct financial services business under the Financial Services (Jersey) Law 1998 and does not itself have a corporate director. A board may establish a committee of directors and confer upon it all of the powers and responsibilities necessary to fulfil its role.
Meetings of directors of a Jersey company are not required to take place in Jersey and may be held by telephone or other means of communication, providing that those present are able to hear what is said by the other participants. It is also possible for directors to pass resolutions in writing.
All companies must appoint a secretary. In the case of a public company, the secretary must have certain prescribed qualifications, as set out in the Law. A sole director cannot also be the company secretary.
Directors are required to disclose any interests in transactions entered into, or proposed to be entered into, by the company which may to a material extent conflict with their own interests. If they fail to do so, the company, or any member of the company, may apply to the Royal Court for an order to set aside the transaction or to require the director to account to the company for any profit from such arrangement.
The Law requires directors "to act honestly and in good faith with a view to the best interests of the company and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances".
The Law permits a company to indemnify its officers against any liabilities incurred in connection with defending any proceedings (whether civil or criminal) against them where the officers acted in good faith and in the best interests of the company, or in respect of any other liability where the company normally maintains insurance.
Directors that are excluded from acting by virtue of disqualification may become personally liable to a company if they act (or are de facto acting) as a director whilst disqualified.
Unless the Articles of Association provide otherwise, or all members of the company agree in writing, every company is required to hold an annual general meeting in each year, the first of which should take place within 18 months of incorporation. Where annual general meetings are to take place, they must be held no more than 22 months apart in the case of private companies and no more than 18 months apart in the case of public companies.
Unless the Articles of Association specify a longer period, at least 14 days' notice is required of an annual general meeting or any meeting in which a special resolution is to be proposed. Annual general meetings may be held on shorter notice if all members entitled to attend and vote at the meeting agree. For all other meetings, shorter notice may be given, provided that at least 95% of members entitled to attend and vote at the meeting agree. Unless otherwise provided by the Articles of Association, notice of meetings must be sent to every member at the member's registered address.
Ordinarily, at a meeting two members present in person or by proxy are needed to form a quorum, and every member present at the meeting has one vote on a show of hands and one vote per share on a vote by way of a poll. Where a company has only one member, or the Articles of Association allow it, one member may form a quorum for a meeting.
Meetings may be requisitioned by the directors or by members holding not less than one tenth of the voting rights in the company. Meetings may also be called by the Royal Court in certain circumstances. There is no requirement for shareholders' meetings to be held in Jersey.
Where membership in a company is held by a body corporate, the body corporate may appoint any person to attend any meeting and vote on its behalf.
Special resolutions of a company are required for a number of purposes including inter alia altering a company's Memorandum or Articles of Association, changing the company name or varying class rights. In order to be effective, a special resolution must be passed by a majority of not less than two thirds of votes cast. Copies of all special resolutions must be filed with the registrar of companies within 21 days of being passed. Where different share classes exist, it may be necessary to pass resolutions of each class.
Except for the removal of an auditor, anything which may be done at a meeting may also be done in writing, provided each member who would have been entitled to attend and vote at such meeting signs the written resolution. Written resolutions can be passed in any number of counterparts for this purpose.
The Law gives members the right to appoint a proxy to attend and vote at any meeting in the member's absence. In the case of a private company, a duly appointed proxy will also have the ability to speak at any meeting. Every notice convening a meeting must provide details of the provisions relating to proxies, together with any requirements or deadline for the return and filing of proxy forms.
At any meeting requisitioned by the Chairman or by not fewer than 5 members representing 10% or more of the total voting rights, a vote must be determined by way of a poll. Unless the Articles provide otherwise, on a poll each member present, whether in person or by proxy, will have one vote per share.
Every company is required to maintain accounts. In the case of public companies, these must be audited by a suitably qualified professional. Private companies may elect to prepare audited accounts, either by including such provision in their Articles or by passing a resolution at a general meeting, but are not legally obliged to do so. A private company which has elected to appoint an auditor can, at any time, elect not to provide audited accounts by passing a special resolution.
A public company must deliver a copy of its audited accounts to the registrar of companies within 7 months after the end of the financial period covered by the accounts. A private company is not required to file accounts with the registrar. The form and content of company accounts is not specified in the Law but companies must prepare accounts in accordance with generally accepted accounting principles.
Distributions (including dividends) can be made from company profits or any other reserves of the company (other than from a capital redemption reserve or nominal capital account). Other than in the case of an open-ended investment company which need only satisfy a simple solvency test, in order to make a distribution the directors of the company must make a solvency statement confirming that the company has sufficient resources to discharge its liabilities as they fall due and that the company will continue to have sufficient resources for the following 12 month period or until dissolution of the company, if earlier.
If an offer to buy all the shares in a company has been accepted by 90% or more of the shareholders, the offeror is entitled to give notice to the remaining shareholders, compelling them to sell the remaining shares on the terms of the offer. An offeror is not entitled to compel the sale of shares after 4 months from the date of the initial offer, or if more than 2 months has expired since the 90% acceptance level was reached.
Furthermore, where an offeror has received 90% or more acceptances in respect of a share offer, a remaining shareholder may require that the offeror acquire its shares on the offer terms.
Compromises and arrangements
Upon the approval of at least three quarters of the creditors or members of a company, the Royal Court has the power to sanction binding compromises or arrangements between a company and its creditors or members.
The Law permits two or more Jersey companies to merge, resulting in one remaining company which has all the property and rights, and the combined liabilities and obligations, of each former company. A statutory merger can offer an attractive mechanism for group restructurings.
Pursuant to the Law, and subject to the legislative requirements of the overseas jurisdiction, companies registered in Jersey may re-register as companies in another jurisdiction. Similarly, non-Jersey companies may register as Jersey companies using the statutory 'continuance' procedure. The primary criterion in each case is that the company is solvent.
In addition to the creation of ordinary companies, the Law allows for the creation of cell companies. A cell company, which can be created as either a protected cell company or an incorporated cell company, has many characteristics of an ordinary company. Cell companies can be created with limited or unlimited liability, as either a public or private company, with par value or no par value shares or with guarantee members. Save in respect of protected cells (which are not bodies corporate and do not have a legal identity separate from that of the protected cell company itself) cells are treated for all purposes as separate companies.
Cell companies within the same structure are required to have the same registered office and secretary but need not have the same directors, Memorandum or Articles of Association. A full discussion of the nature of cell companies is outside the scope of this briefing but separate detailed guidance is available on the Bedell Cristin website.
The historical prohibition on a Jersey company providing financial assistance in connection with the acquisition of its shares has been abolished and, accordingly, a company can now provide financial assistance in the acquisition of its shares (although, if such assistance amounts to a distribution of assets or a reduction in capital, it may need to be sanctioned as such).
In the event that a member feels that the company's affairs are being conducted in a manner which is unfairly prejudicial to the interests of members generally or some part of the company's members, the member has a potential remedy under Article 143 of the Law. Under Article 143, the member can apply to the Royal Court for an order regulating the conduct of the company, requiring the company to refrain from doing or continuing to do a particular act, authorising civil proceedings to be commenced, or providing for the purchase of the member's shares.
Only a public company may issue a prospectus, and a prospectus must contain certain prescribed minimum information. The Law provides that it is a criminal offence for a director to include knowingly in a prospectus a material statement that is untrue or misleading. A company and its directors can also be held liable to pay compensation to its members for any loss due to investment based on misleading or untrue statements.
Winding up and insolvency
Where a company has no liabilities or, in the opinion of its directors, a company will be able to discharge all of its liabilities within 6 months of the commencement of a winding up then a company may apply to be summarily wound up. A company may, but does not have to, appoint a liquidator to assist in this process.
In the event that a company is insolvent, a company may resolve, by way of special resolution, to enter into a creditors' winding up. Here, a liquidator must be appointed (ordinarily, by the creditors) to realise the assets of the company in satisfaction of its debts and liabilities. The treatment and order of priority in respect of such debts is subject to the same rules as prevail in the Bankruptcy (Désastre) (Jersey) Law 1990 being, broadly, the payment (after costs and expenses of the liquidator) of secured creditors in priority to other creditors.
The Law also sets out procedures in respect of the summary winding up of companies of limited duration. The Royal Court may also order the winding up of a Jersey company if it considers it just and equitable to do so or considers it to be in the public interest. Any company in the process of being wound up must state that it is in liquidation on its correspondence and certain other paperwork.
Directors may be held personally liable for a company's debts and other liabilities if the directors are found to have engaged in wrongful trading: that is, they have carried on trading in the knowledge that the company had no reasonable prospect of avoiding insolvency or they were reckless as to whether the company would avoid creditors' winding up or a declaration being made under the Bankruptcy (Désastre) (Jersey) Law 1990.
In addition to potentially being made personally liable to a company, its creditors or members, directors may also be the subject of criminal sanctions if they are considered to have carried on business with the intention to defraud.
Transactions at undervalue and preferences
If, when investigating the affairs of a Jersey company during the course of a winding up, the Royal Court considers that the company has entered into a transaction at an undervalue (which includes a transaction made at a value significantly less than its true worth) or a preference (being an arrangement which puts a creditor, surety or debtor of the company in a better position in the event of a winding up than if the arrangement had not been made), the Royal Court may order the restoration of the financial position of the contracting parties to that immediately before such transaction occurred. In the case of transactions at an undervalue, the Royal Court may overturn transactions which took place up to 5 years before the commencement of the winding up. In the case of preference transactions, the Royal Court may reverse transactions which took place within the previous 12 months.
The Minister for Economic Development and the Jersey Financial Services Commission may, on the application of the registrar, a company or a member, creditor or officer of a company, appoint inspectors to investigate the affairs of a company if they are satisfied there is good reason to do so. Inspectors have the power to investigate both the company and closely related companies and to require the production of documents or, on the authority of Jersey's senior judge, order the search of specified premises. The Minister for Economic Development and the Jersey Financial Services Commission may, on receipt of a report prepared by the inspectors, commence civil proceedings against such body corporate if they believe it is in the public interest to do so. An investigation may also be commenced in relation to a non-Jersey domiciled company which conducts business in the Island or through an address in the Island.
This briefing summarises some of the provisions of the Law, up to and including amendments introduced on 5 April 2010. This briefing is provided as a general overview only and should not be relied upon. For further information in relation to the above or in relation to any specific circumstances, please contact us.