BVI Business Companies Act

The BVI Business Companies Act (No 16 of 2004) is a statute of the British Virgin Islands relating to the formation of all companies in the British Virgin Islands, both offshore companies and local companies. It replaced the extremely popular and highly successful International Business Companies Act.

The decision to replace the International Business Companies Act was driven by two things. Firstly, there was a general perception that the older legislation was becoming a bit dated, and needed modernising. Secondly, the OECD and other mulitnational organisations had expressed concerns about ring-fenced tax regimes in tax havens, [Under the old International Business Companies Act, companies were essentially exempt from taxation in the British Virgin Islands.] such as that under the older legislation and were putting jurisdictions under pressure to repeal them. The British Virgin Islands Financial Services Commission dealt with both issues in a single legislative swoop.

The BVI Business Companies Act is actually based upon a New Zealand statute (as opposed to the International Business Companies Act, which was based on Delaware corporation law). conscious of how widely the earlier legislation had been copied by other tax havens, the BVI Business Companies Act was drafted with a large number of forms and procedures which specifically tied it into the Territory's regulatory structure, thereby making it much harder to simply copy and enact.

Name

The name of the statute actually commences with "BVI". That statute is often mistakenly referred to as simply the "Business Companies Act" due to a common misinterpretation that the "BVI" is a description of the jurisdiction of enactment rather than actually part of the name.

The letters BVI were deliberately inserted as part of the branding exercise, and it was hoped that companies formed under the new legislations would be referred to as "BVIBCs". This would neatly merge the common acronym under the old legislation ("IBCs") and the common reference used in Hong Kong, the which has the largest geographical concentration of British Virgin Island companies, ("BVIs").

Ultimately the phrase "BVIBCs" proved to be too much of a mouthful, and in the offshore financial industry, it is more usual to refer to entities formed under the Act as "BCs", or simply "BVI companies".

Features

The Act contains a number of specific features which are designed to make the British Virgin Islands more attractive as an offshore financial centre. These include:
* considerably restricting the requirement for corporate benefit
* abolishing financial assistance in relation to company shares
* abolishing the concept of a share capital in relation to company shares (and thereby "en passant" removing requirements relating to maintenance of capital and distributable reserves requirements for dividends)
* removing restrictions in relation to the declaration of dividends
* increasing the types of company that can be formed [Under the old International Business Companies Act, it was only possible to form a company limited by shares. Under the new Act it is possible to form a company limited by shares, an unlimited liablity company, a company limited by guarantee which can issue shares, a company limited by guarantee which cannot issue shares, a restricted purpose company and a segregated portfolio company.]
* modernising the regime for registration of security interests
* the Act introduces statutory minority shareholder protections
* companies are no longer required to have a stated corporate object, thereby obviating a number of difficulties relating to "ultra vires" and director's duties.

Transitional arrangements

The intention of the legislation was to eventually consolidate all Britith Virgin Islands company law into a single statute.

Prior to the BVI Business Companies Act coming into force, it was possible to incorporate a company under two different statutes: the International Business Companies Act (Cap 291) and the Companies Act (Cap 285).

After the BVI Business Companies Act came into force on 1 January 2005, it was possible to incorporate a company under any of the three statutes. It was also possible for a company which had been originally incorporated under the International Business Companies Act or the Companies Act to adopt new constitutional documents and voluntarily re-register under the BVI Business Companies Act.

After 1 January 2006, it was no longer possible to incorporate a company under the International Business Companies Act or the Companies Act, but companies which had been originally incorporated under those Acts continued to be regulated by them.

After 1 January 2007, all companies which had been originally incorporated under the International Business Companies Act were compulsorily re-registered under the BVI Business Companies Act. Detailed transitional provisions were enacted in Schedule 2 of the new Act to deal with discrepancies between the two sets of legislation.

It is proposed that after 1 January 2008, all companies which had been originally incorporated under the Companies Act will be compulsorily re-registered under the BVI Business Companies Act. Detailed transitional provisions have been enacted (also in Schedule 2 of the new Act) but it is likely that this will be further amended and modified.

Amendments

The Act has already been amended several times in its relatively brief life. Although some of the amendments relate to fine tuning legislation, and others relate to introducing new features (such as minority shareholder rights), a great many other amendments have been necessary to fix issues brought about by the transitional arrangements. Registration procedures for security interests have proved particularly difficult to resolve. [As at May 2007, it is still not possible to de-register security which had been registered under the old International Business Companies Act, but was released subsequent to the repeal of that legislation. Similarly, amendments to security registered under the old Act cannot be filed either.]

Replications

Although the predecessor International Business Companies Act was widely copied by other offshore jurisdictions, it was assumed that the BVI Business Companies Act would not be similarly replicated, as the architecture of the legislation integrated it very closely with the systems and procedures of the British Virgin Islands corporate registry. However, in 2006 the Isle of Man passed new companies legislation [Isle of Man Companies Act 2006] which was nearly a word-for-word copy of the BVI Business Companies Act.

External links

* [http://www.bvifsc.vg/LegislationLibrary/tabid/211/DMXModule/626/Default.aspx?EntryId=55 BVI FSC legislation library]
* [http://www.itpa.org/open/archive/petersbvibca.html Article on the BVI Business Companies Act]
* [http://www.harneys.com/files/legal-guides/Company%20law%20comparison.pdf Article comparing BVI Business Companies Act to International Business Companies Act]
* [http://www.harneys.com/files/legal-guides/key%20features.pdf Article - key features of the BVI Business Companies Act]

Footnotes