The BVI Business Companies Act 2004 by Richard Peters
The BVI?s International Business Companies Act (Cap. 291) (the ?IBC Act?) has become one of the most widely-used corporate statutes with over six hundred thousand IBCs incorporated under it. Notwithstanding its success, practitioners and users have for some time been calling for amendments to the IBC Act as well as for an additional and more flexible range of corporate vehicles, and its twentieth anniversary marked an appropriate occasion for reform. The result is a new corporate statute for the BVI called the BVI Business Companies Act 2004 (the ?new Act?).Scope of the new Act The new Act came into force on 1 January 2005. This single statute allows for the incorporation of international offshore companies as well as locally owned companies doing business in the BVI. There is a two-year transition period during which both the IBC Act and the new Act will be in force. After the two-year period, the new Act will be the sole corporate statue for the BVI and will regulate all BVI companies.Range of corporate vehicles Seven different types of companies can be incorporated: companies limited by shares: companies limited by guarantee not authorised to issue shares; companies limited by guarantee authorised to issue shares; unlimited companies authorised to issue shares; unlimited companies not authorised to issue shares; restricted purposes companies; and segregated portfolio companies. Memorandum and Articles and no objects clause As with IBCs, the memorandum and articles are the company?s corporate constitution and together with the legislation regulate the relationship between the company, its members and directors. There is no requirement to state the objects or purposes in the memorandum of association. Whilst there is nothing to prevent a company from stating its objects or purposes, it is not required to do so. The only exception to this rule is a restricted purposes company which must state the purposes for which it is incorporated. Corporate capacity and ultra vires Corporate capacity and ultra vires are dealt with differently under the new Act compared to the IBC Act. Three key points should be noted. First, the new Act attenuates the ultra vires doctrine by: (a) not requiring companies to specify their objects or purposes (except restricted purposes companies); and (b) providing that a company has, irrespective of corporate benefit, full capacity to carry on any business or activity, do any act or enter into any transaction, and for those purposes it has full rights, powers and privileges. However, this latter provision is subject to the company?s memorandum and articles. Second, the new Act (as with the IBC Act) provides that no act of a company or a transfer of property is invalid by reason only of the fact that the company did not have the capacity, right or power to perform the act or receive the asset. This provision, which applies equally to the company as well as to third parties dealing with it and can therefore be relied upon by either, means that the mere fact that the company?s act is beyond its memorandum does not mean it is invalid; something more will be needed to render the transaction invalid. It is with regard to this further element, i.e. knowledge, that the third key point in the new Act should be noted. The new Act abolishes constructive notice and knowledge of documents (including the memorandum and articles) registered at the Registry or available for inspection at the company?s registered office, except in relation to charges registered on the Register of Charges (see below). Further, it provides that the company cannot assert against a person dealing with it that the new Act or its memorandum or articles have not been complied with unless that person either knew, or ought to have known, by virtue of his relationship to the company, of the matter.Members, their rights and liabilities In general, members will have the rights conferred on them in the memorandum. However, one of the new features of the new Act is that it specifies the rights that a shareholder has, namely, the right to one vote, the right to an equal share of any dividend, and the right to an equal share in the distribution of surplus asset. These rights can be varied by the memorandum. The new Act does not contain any provisions for members? remedies along the lines of s.459 of the UK Companies Act 1985 for unfair prejudice (which is consistent with the IBC Act). Class rights The new Act allows for the creation of classes of shares, but the rights, privileges, restrictions and conditions attaching to each class must be specified in the memorandum, so that they are set out in one document that is publicly available, whereas the IBC Act allows directors to specify these matters if specifically authorised, i.e. they did not have to be stated in the memorandum and could be set out in a resolution of directors. Directors A company must have at least one director and it must keep a register of directors. As with the IBC Act, the new Act specifically provides that the business and affairs of the company shall be managed by, or under the direction or supervision of, the directors, but subject to any modifications or limitations in the memorandum and articles. The directors can delegate most of their powers to committees of directors or agents but certain important powers cannot be delegated, e.g. the power to amend the memorandum or articles, the general power to delegate to committees (but certain powers can be sub-delegated if authorised by the directors), the power to appoint agents and the power to appoint directors. A director?s equitable duties of acting honestly, in good faith and in what he believes to be in the best interests of the company are given a statutory footing, as is his common law duty of care and skill. The new Act also allows a director of a subsidiary to act in the best interests of its holding company even though it may not be in the best interests of the company, provided he is expressly permitted to do so by the memorandum or articles, and has the prior agreement of all shareholders where the company is not a wholly owned subsidiary.