Mauritius law caters for a variety of investment vehicles, namely limited partnerships, foundations and trusts. Nevertheless, private companies have historically been used, and continue to be so used, given that the company is one of the oldest business forms in the jurisdiction. The focus of this paper is to outline the features of a Mauritius private limited liability company from the perspective of investor protections. It is of prime importance to sustain confidence of investors to encourage efficient investments and access to external finance - adequate protection of investors leads to the assumption that investments are safe.
It has been observed that companies do not readily lend themselves to be used, for instance, as fund vehicles, especially private equity funds, and that other vehicles such as limited partnerships may be more appropriate. However, the Mauritius Companies Act 2001 (the "Act") contains a number of flexibilities, namely that of allowing a unanimous shareholders agreement to override the 'by default' provisions of the Companies Act, which include the form of constitutive documents, decision-making processes, admission and exit of shareholders and transfers, thereby providing for the operating mechanism of partnerships. Furthermore, companies can be structured as limited life companies, limited by shares, or by guarantee and can replicate the carry structure of investment partnerships.
The hallmark of the company is that once incorporated, it is a legal person separate from its shareholders. In a gist, the limited liability principle means that a shareholder's liability is limited to a certain amount, which generally is the amount such shareholder has invested or committed to invest in the company. The company itself remains fully responsible for all the debts it incurs. In particular,
(a) a shareholder is not, in ordinary circumstances, personally liable for the debts of a company, even if the company is unable to pay its debts;
(b) in the case of a claim being made against a company, recovery is limited to the available assets of the company;
(c) in the event the company fails, a shareholder stands to lose any amount it has invested in the company;
(d) where a shareholder has contractually committed to contribute a certain amount of capital to a company, such shareholder can only be held liable up to the maximum of that amount;
(e) a shareholder could be liable to repay a distribution only where this distribution was improperly made by the company;
(f) save as set out above, shareholders cannot be asked or ordered to contribute to the amount of any shortfall by reason only of being shareholders of the company.
The Act takes into account rights of the shareholders both in their individual capacity and as a group. The shareholders as a group enjoy the privilege of exercising control over the working of the company. The Act provides for the flexibility to modify a number of provisions by a shareholders agreement, however, there are certain mandatory provisions which will apply notwithstanding anything stated in the constitutive documents. Such mandatory provisions include:
(g) minority shareholder protection, e.g. the right of shareholders holding at least 5% of the capital to requisition a meeting or the ability to apply for a minority buy-out;
(h) the right to comment on management and make recommendations to the board at a meeting of shareholders;
(i) the right to receive accounts and inspection of books and records of the company;
(j) the right to bring injunctive actions against the management of the company for breach on 'just and equitable' grounds;
(k) the ability of shareholders to prevent a course of action which is 'ultra vires' the company's articles;
(l) the requirement to have the consent of 75% of a share class to be able to vary any class rights.
The rationale for minimum rights stems from the view that a share in a company is considered to be a species of 'property', which can be enforced against the company or any third party, as opposed to a contractual nature of a partnership interest, or a beneficiary's interest, which is enforceable only against parties to a contractual arrangement. The fact that a share is 'property' means the shareholders often have a wider range of recourses and remedies to vindicate their interest.
In contrast to the above, partnership law only sparsely prescribes minimum requirements and most of its provisions defer to the partnership agreement to regulate the relationship between partners. While it is argued that the corporate formalities and filings required by the Companies Act makes the vehicle more burdensome and less flexible to administer, the reverse of the argument is that these formalities and mandatory disclosures afford greater transparency, and creates greater accountability of management towards shareholders.
One of the distinguishing features of the relationships created within a company is that the board of directors is responsible to shareholders for its actions under the doctrine of fiduciary responsibility which imposes on directors various duties, notably the duty to act in the best interest of the company, in good faith and with reasonable care and skill. This doctrine creates a direct cause of action between a company and its directors, and in certain circumstances, between shareholders and directors allowing shareholders to hold directors answerable for their actions, or even compel them to act in a certain way. This contrasts with the position of the general partner in a partnership which is subject to the duty to act in good faith, and such other duties (and limitations thereon) as may be set out in the partnership agreement.
Mauritius promotes itself as business friendly jurisdiction and therefore, protection of investors becomes vital. Affirmative steps have been taken through the Act to protect the interests of the investors. Whilst it is true that a number of provisions of the Act are disapplied for Category 1 global business companies, the fact remains that companies law retains a greater degree of formalism and shareholder protectionism than any other regime applicable to body corporates.