Guide to New Bearer Shares Rehime in British Virgin Islands

1. The IBC (Amendment) Act 2003

In June 2000, industry participators for the first time were informed about future changes in legislation and particularly about government’s intention to amend the IBC Act to restrict the mobility of bearer shares. The new legislation was meant to make offshore companies more transparent and to defend them from international pressure and critics from the side of OECD and FATF. Thus, in the BVI immobilization of bearer shares was preferred to their abolishment, as another preventive measure chosen, for example, in Bahamas, as it is considered an effective way to keep bearer shares while ensuring that the beneficial owners of an entity are known.

In April,2003, the Legislative Council of the BVI passed the International Business Companies Act, 2003, which was signed by the Acting Governor on the 5th of May.

It should be noted that the term "Bearer shares" was not previously defined in the IBC Act. The definition of a bearer share is given in the IBC (Amendment) Act 2003, meaning a share represented by a certificate which states that the bearer of the certificate is the owner of the share.

The main principle of the IBC Act 2003 is that the companies are allowed to issue bearer shares, but they must be kept by an Authorised or Recognised custodian.

For IBCs incorporated before 1 January 2005, it is stated that:

• bearer shares issued before 1 January 2005 do not have to comply with the new regime until 1 January 2011.
• bearer shares issued on or after 1 January must immediately comply with the new regime and be placed with an Authorised or Recognised custodian.

For IBCs incorporated on or after 1 January 2005, any bearer shares which are issued will have to be placed with a custodian immediately upon issue.

2. Fees

Any IBC/BVI Business Company, which has the power to issue bearer shares in the Memorandum and Articles of Association, will have to pay a government incorporation fee and an annual licence fee of $1,100 per year, even if it does not actually issue bearer shares. Companies will start to pay the increased fees from 1 January 2008.

Therefore, it can be advised to the companies which have bearer share powers but do not use them to take action to remove those powers from their Memorandum and Articles, to avoid paying these increased fees.

There will be also the opportunity to convert IBCs into BVI Business Companies after some time.

3. IBC Bearer Shares Custodians

To comply with the new bearer shares regime the bearer share certificates should be deposited with a custodian. There are two types of custodians: authorised and recognised. Bearer shares issued before 1 January 2005 have to be placed with a licenced custodian by 31 December 2010. Otherwise, they should be exchanged for registered shares or they should be cancelled or redeemed by this date. Bearer shares issued by an existing company on or after 1 January 2005 have to be placed with an approved custodian upon issuance.

(1) Authorised Custodians

Authorised Custodians must be licenced by the BVI Financial Services Commission. It is probable that BVI Trust Companies and Banks are licenced as Authorised Custodians, however the requirements are still not defined.

It will also be possible for a financial institution to apply to become an "Authorised Custodians", if it can prove that it is subject to recognised customer due diligence obligations and principles. Actually, it seems that the requirements for becoming an Authorised Custodian will be reasonably difficult to satisfy and include, in addition to special security measures, insurance and audit measures.

BVI FSC has issued an Aide Memoire which gives guidance to applicants wishing to obtain the licence. A copy of this document can be accessed on the Commissions website.

(2) Recognised Custodians

Recognised Custodians are investment exchanges, securities clearing organisations specialised in the custody business and specially designated by the FSC as "Recognised custodians", or settlement systems in a jurisdiction which is an FATF member. They will automatically be recognised, and the list will probably include custodians in the UK, Europe, the United States of America and Hong Kong.

4. Requirements for Shareholders

If the bearer shares of BVI IBC are held with the licenced custodian, then the owner of the bearer shares must provide the following information to the custodian:

• full name of the beneficial owner of the shares,
• declaration that no other person has an interest in the shares, or full names of any persons having an interest in the shares.

If the shareholder have not provided the above information, the custodian does not accept the shares. If the shares are delivered to the recognised custodian to another jurisdiction, company’s registered agent must receive, within 14 days, the form with proof of delivery to the recognised custodian and a notice containing the required information. This prescribed form, however, has not yet been introduced.

5. Transfer of Bearer Shares

If an owner of bearer shares wants to transfer ownership, he only needs to deliver physically the bearer share certificate to another person. Under the IBC (Amendment) Act 2003 and the custody arrangements, when a client has bearer shares and wants to sell these shares, the Authorised Custodian may deliver the bearer share certificates only to another Authorised/Recognised Custodian who has agreed to hold the certificates.

So, in any case the Registered Agent of the company will have to be informed each time when the possession of the bearer share certificate is transferred to another Authorised Custodian. In case of Recognised Custodians, the share certificates should be sent back to the Registered Agent or to the company who would then forward the shares to the new Recognised Custodian.

6. Alternatives

The choice of alternative solutions depends on whether you want to keep bearer shares and just ensure for yourself the higher level of privacy and confidantiality, or you want to avoid the custodian matters and the increase in annual fees by relinquishing the right to issue bearer shares.

In the first case - if you still want to preserve the right to issue bearer shares - following alternatives exist:

• Establishing a trust. Then ownership of shares in an IBC may be settled into a trust.
• Re-domiciling your company into an alternative jurisdiction. The IBC Act gives the possibility to companies to re-domicile to other jurisdictions. Many jurisdictions, including, for example, Seychelles and Anguilla, have not implemented custodianship issues until this moment, and do not have proposed increases in government fees on issue or the ability to issue bearer shares in the M & A.
• Incorporating a new company in other jurisdictions that allow the issue of bearer shares without involving custodians. This alternative may suit you if you have no need to keep the existing BVI Company and would like to continue using bearer shares freely.
• Using a company from another jurisdiction as a holding company that allows bearer shares for your existing BVI Company. You can consider this variant if you would like to keep your existing BVI Company and would like to keep on using bearer shares.
• Using Nominee Service to enjoy a higher level of confidentiality. On the other hand, the Share Certificate for a nominee shareholder is an alternative to bearer shares.

7. Alternatives without Bearer Shares

If you do not wish to preserve the right to issue bearer shares, you should consider this:

• Registered shares. The Share Register of the Company is maintained by the Registered Agent of the company, and the information must be held in strict confidence. The Agent may disclose this information only in the case of a court order or an inspection of the company documentation by the FSC or other BVI authorities. Therefore, having Registered Shares does not result in the public availability of the information about the owner of the shares. The first step for changing into registered shares is to locate the bearer share certificates and pass the necessary resolutions to exchange those shares for registered shares. The second step will be to adopt and restate M & A to prohibit the issue of bearer shares. You can also establish a Foundation to hold the Registered Shares.
• If you have not issued bearer shares, you may adopt and file a new M & A in order to prohibit the issue of bearer shares and thus avoid the increase in annual fees. Under both the IBC & BC Acts, amendment to the M&A is effective from the date that the restated M&A is registered by the Registrar.

8. Requirements for the Register of Directors

The International Business Companies Act 2003 also introduced another important amendment: the requirement to maintain the Register of Directors at the Registered Office of the IBC company in BVI.

The Register of Directors should contain following information: name of the Director, his/her address, meaning that it is contact information, the date of his/her appointment and resignment/ removement.

For companies incorporated on or after 1 January 2005, it is mandatory for a Register of Directors to be kept at the BVI registered office of all IBCs. The Register of Directors does not need to be filed at the Registrar of Companies, and details about directors will continue to remain confidential to third parties.

The companies incorporated before 1 January 2005 had to establish and maintain a Register of Directors within 12 months from 1 January 2005. The Register of Directors must contain information about directors on 1 January 2005, together with all changes in respect of the directors thereafter. The Register of Directors does not need to contain directors information before 1 January 2005.

If an IBC maintained an optional Register of Directors before 1 January 2005, a copy of that register shall be retained at its registered office for a period of at least 10 years from 1 January 2005.