The legislative framework of the British Virgin Islands
Philip Graham and Philipp Neumann
Harney Westwood & Riegels
Tortola
Philip Graham (Bio)
Philipp Neumann (Bio)
The reputation of the British Virgin Islands (BVI) as a successful and fully developed offshore jurisdiction remains as solid as ever after a busy year of legislative activities in 2010. It also remains a politically stable jurisdiction in which there have been over 800,000 companies incorporated for a wide variety of purposes since 1984.
The long-established statutes in the BVI have not been changed substantially since their introduction and with the enactment of the Securities and Investment Business Act, 2010 (SIBA), there is great confidence that the BVI will continue to flourish. The key areas of legislation are:
BVI business companies
The main statute governing incorporations is the BVI Business Companies Act, 2004 (BVIBCA). Companies incorporated under the BVIBCA are frequently used as holding companies. Such holding companies are typically not caught by the regulatory regime imposed by SIBA and have proved to be a flexible vehicle for different kinds of international corporate structuring or simply to act as nominee shareholders or corporate directors of other companies.
Among the different types of companies that can be incorporated under the BVIBCA are restricted purposes companies (RPCs) and segregated portfolio companies (SPCs).
RPCs are companies limited by shares but with restricted objects or purposes and whose certificate of incorporation will state that they are RPCs. Their primary use is in structured finance and securitisation transactions.
SPCs are single corporate entities with the benefit of statutory segregation of assets and liabilities between its segregated portfolios established within the Company. SPCs are limited by shares and may only be incorporated with the prior written approval of the Financial Services Commission of the BVI (the FSC). Initially, only insurance companies could register as SPCs. However, mutual funds became able to register themselves as SPCs pursuant to the Segregated Portfolio Companies Regulations, 2005. It is certainly the case that this type of structure is proving increasingly popular in the mutual fund sector in light of the issues that affected the industry in 2008/09.
BVI partnerships
Partnership law in the BVI remains based upon the Partnership Act, 1996 (PA96) pursuant to which general partnerships or limited partnerships are able to be formed. It should be noted that although a partnership is often thought of as a separate legal entity, both general and limited partnerships in the BVI do not in fact have a legal identity distinct from the partners of which they are comprised.
A limited partnership is defined under PA96 as a partnership formed by two or more persons with one or more general partners and one or more limited partners. Any one person may be both a general and limited partner in the same partnership at the same time but the partnership must always consist of at least two distinct persons.
In general terms, a limited partner contributes to the capital of the business but is not liable for the debts and obligations of the limited partnership (unless he is also a general partner) and does not take part in the control of the partnership business. However, a limited partner may become liable for the obligations of the limited partnership if he participates in the control of the partnership business and any persons transacting business with the limited partnership reasonably believe, based upon his conduct, that he is a general partner.
Mutual funds
The investment funds industry in the BVI is regulated by the Investment Business Division of the FSC and the primary legislation which governs the industry is SIBA.
Regulated funds are categorised as private funds, professional funds or public funds. It must be borne in mind, however, that not all investment funds will be subject to SIBA, as it only regulates open-ended funds (whose equity interests are redeemable at the option of the investor). Closed-end funds (funds whose equity interests are not redeemable at the option of the investor) are not subject to specific regulation in the BVI. However, certain service providers to such closed-end funds that are based or incorporated in the BVI might be regulated under SIBA and require specific licenses.
The majority of BVI investment funds are established as companies limited by shares under BVIBCA. Limited Partnerships are also common while unit trusts are relatively rare.
Vista trusts
The Virgin Islands Special Trust Act, 2003 (VISTA) allows for the set up of a special trust in the BVI. The primary purpose of VISTA is to enable a trust of company shares to be established under which the shares may be retained indefinitely and the management of the company may be carried out by its directors without any power of intervention being exercised by the trustee.
VISTA effectively addresses the concerns of owners of shares in a company who wish to take advantage of the benefits of a trust, for estate or corporate planning purposes, but who are concerned about losing effective control of their shares and the company.
Banks and trust companies
The Banks and Trust Companies Act, 1990 (BTCA) regulates the licensing and operation of banks and trust companies in the BVI. However, to add some flexibility to this regime, the Financial Services (Exemptions) Regulations, 2007 enables private trust companies to be incorporated and used in the BVI without the need to obtain a trust licence under the BTCA.
A private trust company is typically used where a family wishes to structure and consolidate ownership of their wealth through a trust, and at the same time retain active control over the administration of the trust; the private trust company acts as trustee of the trust, while the family are able to participate and determine the directors of the private trust company.