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Why use a BVI company in your cross border transaction or global group structure?

15 May 2014

Ease of incorporation
A BVI Business Company can be incorporated within 24 hours of the BVI registered agent having received all of the required anti-money laundering due diligence information on the proposed shareholders and directors of the company. The costs of incorporating a BVI company are low in comparison to other offshore jurisdictions. Once a BVI company is incorporated there is a requirement to pay an annual government licence fee[1] plus any standard fees charged by the registered agent[2]

The BVI Business Companies Act 2004 (as amended) (the "Act") is unique in the flexibility it provides. For example, the constitutional documents (the Memorandum and Articles of Association) of a BVI company can be drafted to accommodate a specific transaction or shareholders' agreement or can be amended to include required provisions from a particular stock exchange.  

No taxation and numerous Tax Information Exchange Agreements
The BVI imposes no corporation tax, capital gains tax, inheritance tax or any other form of taxes applicable to a company conducting business outside of the BVI. The BVI has also entered into Tax Information Exchange Agreements ("TIEAs") with at least 25 jurisdictions including the US and Canada. These TIEAs can provide a more tax efficient basis upon which companies based in the TIEA jurisdictions can utilize BVI companies in their global structures.

No residency requirements for directors
There is no requirement for a BVI company to have BVI resident directors. This of course does not preclude a client from choosing to have BVI resident directors should they need to for tax purposes outside the BVI.

Directors of joint venture companies
The basic statutory duty of a director is to act in a manner which he believes to be in the best interests of the Company. This can often be an issue for a director of a joint venture vehicle when appointed by a particular shareholder. However, this is addressed in the Act and provides that a specific provision can be drafted into the articles of association of the BVI company permitting a director of a joint venture company to act in the best interests of one or more shareholders regardless of whether such action is in the best interest of the company itself.  

Dividends and distributions
One of the major advantages of using a BVI company in your global structure is the ease with which profits or assets can be released from the BVI company to the shareholders. In order to declare a dividend or distribution, the directors of the BVI company are only required to declare that (i) the company's assets exceed its liabilities and (ii) the company is able to pay its debts as they fall due. There is no requirement for the BVI company to have distributable reserves or profits before a distribution can be paid out. Distributions and dividends can be paid either in cash or in specie.

Going public
BVI companies have proven to be a popular choice of corporate vehicle for listing on stock exchanges around the world. BVI companies are currently listed on AIM, NASDAQ, NYSE, HKSE and TSX (to name but a few).

There are several reasons why a BVI company is a perfect vehicle for listing: 

  • A BVI company can issue no par value shares;
  • BVI companies can be authorized to issue an unlimited number of shares without the need for ongoing shareholder approval; 
  • there is no share capital per se, meaning that subscription amounts can be fully attributed to the BVI company and need not be divided into share capital and premium accounts; 
  • the Act provides a framework of corporate governance which is geared in favour of directors and the approval of the directors is all that is required to effect almost all business decisions if desirable; and
  • BVI companies can 'opt out' of statutory default positions in their constitutional documents - meaning that the corporate governance of the company can be tailored to suit the requirements of any listing authority.

The Act contains statutory merger and consolidation provisions which permit mergers between BVI companies and companies existing in other jurisdictions and ensure that such activities are straightforward and easy to facilitate. 

Shareholder Protections
The Act provides statutory protections for shareholders which will be familiar to those practicing in other jurisdictions. These include compliance orders, derivative actions and remedies for unfair prejudice.

Statutory regime for court approved Schemes and Plans of Arrangement
The Act contains detailed provisions enabling a BVI company (through its shareholders, directors or creditors) to pursue a court approved Scheme (or Plan) of Arrangement (akin to the provisions contained in the UK Companies Act 2006).

BVI companies can easily be continued into another jurisdiction (where such jurisdiction permits) in the event a change of domicile is required for tax or other purposes.

This briefing is general in scope and is not intended to be comprehensive or a substitute for legal advice.

[1] Currently US$350 for companies authorized to issue a maximum of 50,000 shares or US$1,100 for companies authorized to issue more than 50,000 shares.
[2] These fees will vary depending on which Registered Agent is used.

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