This Guide takes into account the Companies Act 1981 (the "Companies Act") including all of the recent amendments to the Companies Act and is divided into five parts:
A. Exempted Companies
B. Overseas ('Permit') Companies
C. Arrangements, Reconstructions and Amalgamations & Mergers
E. General Information
Under the heading of General Information, we have dealt with such matters as banking facilities in Bermuda, accountants, mutual and mutual fund companies, winding up and other topics.
This Guide is concerned primarily with "exempted companies" and "permit companies"; no reference has, therefore, been made to those provisions of the Companies Act that regulate the carrying on of business by local companies in Bermuda. Broadly speaking, local companies are required to have at least 60% of their issued share capital beneficially owned by Bermudians. Exempted companies are formed primarily for the benefit of non-residents of Bermuda, to enable such persons to carry on business outside Bermuda or with other exempted undertakings in Bermuda. "Exempted", in relation to an exempted company, implies exemption from, inter alia, the requirement that at least 60% of the equity be beneficially owned by Bermudians.
All references in this Guide to "dollars" or "$" are to Bermuda dollars. There is parity between the Bermuda dollar and the United States dollar.
It is recognised that this Guide will not completely answer the detailed questions that clients and their advisers may have. It is intended to provide a sketch of Bermuda's legal and regulatory environment in relation to exempted and permit companies. The Guide is, therefore, designed as a starting-point for a more detailed and comprehensive discussion of the issues.
Whilst we have made every effort to ensure the accuracy of the statements made herein, we accept no liability for any errors. In all cases expert legal advice from a qualified practitioner of Bermuda law should be obtained.
Bermuda's statute law on companies is contained in the Companies Act 1981 (the "Companies Act"). Until 1970, it was only possible to incorporate a limited liability company in Bermuda pursuant to a private Act of the Legislature. In 1970, the concept of incorporation by registration was introduced. Nearly all companies are now incorporated by registration, although incorporation pursuant to a private Act is still available and must be used where the general statute law will not accommodate the proposed structure, internal organisation or method of operation of the entity. This ability, with necessary philosophical limitations, to design a private Act to meet some or all of the special needs of a company is a feature not commonly found in other jurisdictions.
PART A EXEMPTED COMPANIES
Bermuda companies fall into two principal categories: companies incorporated by Bermudians to trade primarily in Bermuda and companies incorporated by non-Bermudians for the purpose of conducting business outside Bermuda. This Guide is concerned only with the latter kind of company. Companies falling into this category are known as "exempted companies" and are so-called because they are exempted from those provisions of Bermuda law which stipulate that at least 60% of the equity must be beneficially owned by Bermudians (§114, Third Schedule). Permit companies (i.e. overseas companies that have received a permit to carry on business in or from within Bermuda) are dealt with in Part B of this Guide.
In general terms, the Companies Act restricts an exempted company from carrying on business in Bermuda, except to the extent that it is so authorised by its constitutional documents and has been granted a license by the Minister of Finance (the "Minister"), who will form a view as to whether or not the granting of such a license is in the best interests of Bermuda (§129). Having said that, there are certain activities that are expressly excluded from the requirement for a license. Such activities include: doing business with other exempted undertakings (e.g. exempted companies, permit companies, exempted partnerships and exempted unit trust schemes) in furtherance of the business of the exempted company that is being conducted outside Bermuda; dealing in securities of exempted undertakings, local companies or partnerships; carrying on business as manager or agent for, or consultant or advisor to, any exempted company or permit company which is affiliated (whether or not incorporated in Bermuda) with the exempted company or an exempted partnership in which the exempted company is a partner or, in the case of mutual funds, selling or distributing their shares in Bermuda.
The Companies Act also makes provision for, amongst other things, the incorporation of single shareholder companies. The reader should therefore be aware that, in this Guide, references to shareholders also embrace the sole shareholder of such a company.
a. By Registration
The first step in the registration procedure is the reservation of a name with the Registrar of Companies (the "Registrar"). A company may also apply for registration of a secondary name, in a foreign language and non-roman script, to be used in addition to its primary name (§10A). The application to form a company is then submitted to the Bermuda Monetary Authority (the "Authority"), which should include the name of the proposed company, the nature of its intended business and the proposed ownership of the company (§6).
Concurrently, approval is sought from the Authority for the intended beneficial ownership of the company, details of which are confidential. Personal Declarations signed by the beneficial owners must be supplied, unless the owners are already sufficiently well known to the Authority or are public companies (in which case a copy of the latest annual report will be required).
The Memorandum of Association of the company ("the memorandum") is submitted to the Registrar. The memorandum will state, amongst other things: the share capital of the company and its division into shares of a specified par value; whether the liability of the shareholders is limited or unlimited; and the objects (i.e. business purposes) and powers of the company (§11). Companies may be incorporated with unrestricted objects and the powers of a natural person. The memorandum can also specify the period, if any, fixed for the duration of the company, or the event, if any, upon which the company is to be dissolved.
The consent of the Minister of Finance ("the Minister") to incorporate a company is only required in respect of companies that engage in so-called restricted activities, e.g. investment business; trust business, mutual fund business, deposit taking and money services and insurance (§129A). The Minister will require information that demonstrates that the company has adequate knowledge and experience available to it. The Minister may, at his discretion, grant or refuse his consent and need not give any reason for his decision.
Ordinarily, an incorporation that requires only the approval of the Registrar can be accomplished in 24 to 48 hours. Where the consent of the Minister is required, the time needed is usually three to five working days from the date that the Bermuda attorneys have received all necessary information relating to the proposed company, and all Personal Declarations from the proposed beneficial owners. However, in the event of a genuine emergency, in cases where the consent of the Minister is required, a procedure is available to permit incorporation within two to four days.
b. Pursuant to a Private Act of the Bermuda Parliament
This procedure is relatively straightforward and not as costly as might be expected. Corresponding to the registration procedure, it is necessary to reserve the proposed name with the Registrar and to advertise the proposed incorporation by means of a Private Bill Notice in a Bermuda newspaper. The principal hurdle to be surmounted, in practice, is the review of the Bill by the Joint Standing Committee on Private Bills, whose favorable report will invariably ensure a smooth passage for the Bill through the legislative process.
The Bill (which, when enacted, is known as the Incorporating Act) corresponds to the memorandum of a registered company and will set out, amongst other things, the proposed objects and powers of the company. In addition, provisions will be embodied which address any special features of the proposed company.
After the Bill has been enacted (the process usually having taken six to eight weeks), the company is incorporated by the filing of a memorandum, signed by at least three persons who are normally nominees resident in Bermuda. Once incorporated, the company is subject to the provisions of its own Incorporating Act read together with the general company law of Bermuda.
It should be noted that this ability to petition the Legislature (for a private Act which modifies or waives the requirements of some public statute or creates provisions which have statutory force where they do not presently exist) is not restricted to applicants seeking incorporation, but is also available to registered companies. This may be important when incorporation must take place at a time when the Legislature is not in session.
We have now reached the point where the company is in being. The company will at this time receive an exchange control designation from the Authority (see Part A: 6.a) and will on the date on which the memorandum is filed with the Register of Companies ("the Registrar") have made the first payment of the annual government fee (see Part A: 5), as this fee must be paid. The Registrar will then register the memorandum and issue a certificate of incorporation showing the date of registration. From the date of registration of a company the subscribers to the memorandum, together with such other persons as may from time to time become members of the company, shall be a body corporate by the name contained in the memorandum, capable of exercising all the functions of an incorporated company (§14(3)).
Whichever method of incorporation has been adopted, the signatories to the memorandum are the provisional directors of the company who act as such until the first board of directors is elected (§69). The provisional directors will have subscribed to the bye-laws of the company (which govern the company's internal organisation, management and administration, see Part A: 4.b.), will allot the share capital and will convene the so-called "statutory meeting", which is deemed to be the first annual general meeting of the shareholders of the company.
At the statutory meeting (§70), the shareholders will confirm the bye-laws, elect the first board of directors and appoint auditors. The first board of directors meets immediately following its election for the purposes of, amongst other things, electing the company's officers for the ensuing year, fixing the company's financial year-end, opening bank accounts, establishing the company's registered office and dealing with other matters necessary to put the company in a position to commence business (for example, in the case of an insurance company, appointing insurance managers and taking steps to secure registration of the company under the Insurance Act 1978).
a. By Registration
Each subscriber to the company must sign the memorandum in the presence of at least one witness, who will attest the signature (§7(4)). Once the memorandum is registered it will bind the company and its shareholders (§16).
The memorandum of every company must state:
- the name of the company and, in the case of a company limited by shares or a company limited by guarantee, the word "Limited" as the last word of the name (subject to certain powers to dispense with "Limited", for example, in the case of charitable companies) (§7(1)(a));
- in the case of a company limited by shares or a company limited by guarantee, that the liability of its members is limited (§7(1)(aa));
- the objects of a company or that its objects are unrestricted (§7(1)(b));
- the secondary name of the company, if any, i.e. the name of a company that is in a foreign language or a script other than roman script in addition to the primary name of the company (§7(1)(bb));
- the names, addresses and nationalities of the persons who subscribe their names to the memorandum and which of them, if any, has Bermudian status (§7(1)(d));
- whether the company is to be an exempted company (§7(1)(e));
- the maximum land holding powers of the company in relation to land situate in Bermuda and, where it is proposed that the company shall acquire a particular parcel of land, a full description of that parcel (§7(1)(g)); and
- the period, if any, fixed for the duration of the company, or the event, if any, on the occurrence of which the company is to be dissolved, i.e. the company will be limited in duration and the winding-up of the company will be automatically triggered upon the lapse of the stated period or occurrence of the stated event (§7(1)(h)).
- In addition, in the case of a company limited by shares, the memorandum must also state (§7(2)):
- the amount of share capital with which the company proposes to be registered and the division thereof into shares of a fixed amount; and
- that the persons who subscribe their names to the memorandum agree to take such number of shares of the company as may be allotted to them respectively by the provisional directors, not exceeding the number of shares for which they respectively subscribe, and that they agree to satisfy such calls as may be made on them by the directors.
Further, in the case of a company limited by guarantee, the memorandum must also state that:
- each member undertakes to contribute to the assets of the company in the event of it being wound up while he is a shareholder; or
- within one year after he ceases to be a member, for the payment of the debts and liabilities of the company contracted before he ceases to be a member; and
- each member undertakes to contribute to the costs and expenses of winding the company up, and for the adjustment of the rights of the contributories amongst themselves, such amount as may be required, but which will not exceed a specified amount (§7(3))(unless the company is a mutual company, see Part E: 3).
Historically a company was required to set out in its memorandum its objects and powers. Typically, companies established a broad range of bespoke objects and powers, in addition to the statutory objects and powers set out in the now repealed Second Schedule and First Schedule of the Companies Act, respectively. The rationale for including such a broad range of objects and powers was to ensure that a company had the requisite corporate capacity and power to enter into as wide a range of business as possible.
Since 2007 the Companies Act has permited a company to have unrestricted objects and the capacity and powers of a natural person (§11). For those companies that adopt such objects and powers, and thereby enjoy unfettered capacity and power, the ultra vires rule would become redundant. It should be noted that companies in existence prior to December 29, 2006 are still subject to the law which applies to corporate capacity and powers.
c. Secondary Name
A company may apply to the Registrar of Companies for registration of a secondary name, defined as a name of a company in a script other than roman script and in addition to the primary name of the company (§10A). An application for registration of a secondary name must be in the form determined by the Registrar and must be accompanied by a certificate signed by a person authorized to administer oaths certifying the accuracy of the English translation of the secondary name and that the person is fluent in the language and script used to express the secondary name (§10A(3)(a)). In addition, a copy of the text in electronic form must also be supplied (§10A(3)(b)). The Registrar will then enter the secondary name on the register and the effective date of registration, together with the primary name, and will issue a certificate of the secondary name (§10A(4)).
A company may only use its secondary name on a document if its primary name is also shown on the document in close proximity to the secondary name (§10A(8)).
The registration and subsequent use of a secondary name by a company does not affect the rights and obligations of the company or render defective any legal proceedings that are continued or commenced by or against the company in its primary name (§10A(9)).
d. Change of Name, Alteration of Objects, Limited or Unlimited Liability
A change of name, a change of objects (§12) and a change from limited to unlimited liability require a resolution of the shareholders passed at a general meeting of the company. In the case of a change of name (§10), the change is effective upon filing the prescribed documentary evidence with the Registrar. This is also true of an alteration of a company's objects. However, unless an affidavit can be sworn and filed to the effect that the two directors swearing the affidavit do not know of any specified person who can make an application to the Court for an annulment, there is a 21 day waiting period following the passing of the shareholders' resolution before the filing can be made.
It should be mentioned that no company may be registered with a name, or seek to change its name to a name which, in the opinion of the Registrar, is undesirable (§8). There are certain specific restrictions on the choice of name for a company. For instance, the name may not be identical to, or closely resemble, that of another company incorporated in Bermuda; nor may it contain the words "Chamber of Commerce", "Royal", "Imperial", "Municipal", "Chartered", "Cooperative" or "Building Society" (§8(2)).
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