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1.1.3. Specific Constraints of Available Legal Entities

Bermuda Exempt Company

An "exempted company" qualifies as an exempted undertaking under the Exempted Undertakings Tax Protection Act (EUTPA) (article 128 of the CA) and may therefore enter into an arrangement with the Minister of Finance, whereby exemption from income, profits and capital taxes (at present Bermuda has none) is guaranteed for a period not extending beyond 31 March 2035.

An "exempted company" is generally incorporated and registered in Bermuda in the same way as a Bermudan "local company"; its memorandum must state that it is an "exempted company" (article 7 of the CA). However, by definition, an "exempted company" is a company which does not comply with the CA requirements for classification as a "local company" (article 127 of the CA). The consent of the Minister of Finance is required for a company to be classified as an "exempted company" (article 127 of the CA).

An "exempted company" must have (i) a minimum of one director ordinarily resident in Bermuda; (ii) a secretary ordinarily resident in Bermuda; and (iii) a resident representative ordinarily resident in Bermuda (article 130 of the CA). A secretary or resident representative so appointed may be either an individual or a company.

A resident representative is required to act as an agent for service of process in Bermuda and is entitled to receive notice of, attend, be heard at and receive minutes of all meetings of the members and the directors or any committee of the directors. It is the duty of the resident representative to report in writing to the Registrar within 30 days of becoming aware of any breach by the company of any provisions of the CA or any regulation thereunder which will have a material effect on the affairs of the company and any issue or transfer of shares made in contravention of any other statute.

An "exempted company" may do business with individuals and companies outside Bermuda or with other "exempted undertakings" in connection with offshore business, if its memorandum of association, act of private company incorporation or any other act so provides. The company may do business in Bermuda only for the purpose of developing its offshore business. However, the company may deal in shares or other securities of local companies or partnerships (subject to a 40% limit on non-Bermudian ownership) or other "exempted undertakings" and reinsure risks underwritten by a Bermudan-incorporated licensed insurance or reinsurance company. The company may also carry on the business of the marketing of shares of an exempted company where the exempted company is a mutual fund, interests in a limited partnership in respect of which the exempted company is a general partner or units in a unit trust in respect of which the exempted company is a manager or otherwise deal with the holders of such shares, interests or units. The marketing or dealing with holders of shares, interests or units includes the offering of such shares, interests or units for subscription or purchase by prospectus or otherwise, and the acceptance of subscriptions for, or offers to purchase, or applications to redeem such shares, interests or units (article 129 of the CA).

An "exempted company" may only engage in international shipping traffic (article 129 of the CA) if the vessel is owned, operated or chartered by an "exempted company" and the shipping operation is negotiated with a "local company".

While "exempted companies" may not normally carry on purely Bermudan business, they may apply to the Minister of Finance for a license to carry on such business, retail trade excepted. The Minister may refuse the license without giving any reasons. In reviewing an application, the Minister must consider the economic situation and the protection of persons already engaged in business, the nature and previous conduct of the company and the persons having an interest in the company, any advantage or disadvantage which may result from the company carrying on business and the desirability of retaining in the control of Bermudans the economic resources of Bermuda (article 114B of the CA).

Additionally, under article 129 of CA exempted companies are not capable of acquiring or holding land unless (i) the land is required for executing company´s business, case in which it can celebrate a leasing or a tenancy agreement over the land; or (ii) the Minister grants previews consent for holding the land under a leasing or tenancy agreement for a maximum of 21 years. Other rules regarding the restriction of exempted companies to acquire or hold land are established on abovementioned article 129.

An "exempted company" must by 31 January each year send the Registrar a statement giving details of its principal current and intended business, and if its principal business is the management of unit trusts, stating the number of trusts managed or to be managed, and the amount of its authorized capital at the date of registration of the company or as of 31 August preceding the date of the return, whichever is the earlier. The amount of the share premium account must also be declared (article 131 of the CA).

In May of 2015 was issued a legislative amendment that became operative in December 29 of that year. Due to that amendment, the exempted companies are now able to convert to an exempted partnership, provided the fulfillment of requirements established in Part XB of Companies Act.

Bermuda Local Company Limited by Shares

A "local company" is defined as a company incorporated in Bermuda other than an "exempted company" (article 2 of the CA). Only a "local company" or a wholly owned subsidiary of such a company may carry on business in Bermuda without a license or permit. It must also be Bermudan controlled (article 114 of the CA). "Controlled" in this context means in principle that at least 60% of the voting rights are exercisable by, and at least 60% of the shares are beneficially owned by, Bermudans. Control by Bermudans also entails that at least 60% of the directors must be Bermudan (article 114, Third Schedule of the CA). Certain persons are deemed to be Bermudan, including individuals having the status of a Bermudan under the Bermuda Immigration and Protection Act 1956, supplemented by immigration regulations, and companies at least 80% of whose issued share capital is owned by Bermudan individuals (article 113 of the CA).

A "local company" which is not Bermudan controlled must apply for a license to carry on a business in Bermuda (articles 114 and 114A of the CA). This type of license is granted entirely at the discretion of the Minister of Finance (article 114B of the CA), on payment of a fee of BMD 1,000. Subsequently an annual fee of BMD 1,000 is payable to the Registrar of Companies by 31 January (article 114C of the CA).

When considering the license application by a "local company" wishing to run a hotel, the Minister must consult with the Minister for Tourism (article 115 of the CA). A license granted to a local hotel company which is a subsidiary of a foreign company may be revoked by the Minister if effective control of the company passes to non-Bermudans (article 114C of the CA).

One or more persons (individuals or companies) may associate to form a local company by filing with the BMA the prescribed documentation. The BMA is the regulatory body which reviews the application and provides its recommendation to the Minister of Finance, who has the authority under the CA to provide or withhold his consent to the application (article 6 of the CA). The prescribed documentation includes the memorandum of association, details of the company's objects, initial share capital and the identity of the beneficial owners and other intended owners of the shares. The memorandum must state whether a member's (shareholder's) liability is to be restricted to the amount (if any) unpaid on his shares and whether the company is to be an exempted company (article 7 of the CA). The Companies Amendment Act 1994 introduced the concept of the "unlimited liability company". A limited liability company's name must include the word "Limited" (article 8 of the CA). The abbreviation "Ltd" is also accepted. The consent of the Minister of Finance and the memorandum of association, together with the registration fee must be delivered to the Registrar of Companies ("Registrar") within 6 months of the date of the grant of the consent (article 14 of the CA). If the Registrar is satisfied that the company will be in compliance with the CA, he will register the company and issue a certificate of incorporation.

The memorandum of association may only be altered with the approval of the shareholders, which may be given at a general meeting or by unanimous written resolution (articles 12, 77 and 77A of the CA). In addition to a memorandum, every company must have by-laws, which regulate matters such as shareholders’ meetings, appointments, activities and meetings of directors, appointment and functions of auditors, accounts, etc. By-laws may be amended by the directors, but such amendments only become operative when approved by the shareholders at a general meeting (article 13 of the CA).

Under an amendment act of 2014, operative since March 27 of that year, restrictions for the acquisition and holding of land by companies were imposed. According to these restrictions, companies cannot acquire or hold land. Notwithstanding the foregoing, companies are able to hold land under the following special provisions:

  • Without requiring previews consent of the Minister, a company may hold land under a lease or a letting agreement with a maximum term of 50 years when land is required for company´s business;
  • With the consent of the Minister, a company may hold land under a lease or a letting agreement with a maximum term of 21 years when land will be used for accommodation or recreational purposes of officers and employees;
  • When the company is a trust in accordance with Trusts Act, it may acquire and hold land as trustee; and
  • With previews consent of the Minister, when the company has a physical presence in Bermuda, it can take by lease or letting agreement for a maximum term of 131 years land used for provision of hotel services.

Notwithstanding the foregoing, all property rights and obligations arising from land that companies granted before the amendment act, are respected in accordance with Schedule Eleven of CA.

Bermuda 'Permit' Company

An overseas company, i.e. a company incorporated outside Bermuda (article 2 of the CA), needs a permit to carry on business in Bermuda.

Once the permit (license) is granted, the company will be designated a permit company (article 133 of the CA). Application must be made to the Minister of Finance, accompanied by the prescribed documentation and the prescribed fee. A non-resident insurance undertaking does not require a permit under these provisions to operate in Bermuda, nor does an overseas company merely holding directors' or shareholders' meetings in Bermuda. However, a company which occupies premises in Bermuda or advertises or uses letterhead revealing a Bermudan address is deemed to be engaged in or carrying on a trade or business in Bermuda and requires a permit (article 133 of the CA).

A company will be granted a permit entirely at the Minister's discretion; in considering the application, the Minister must take into account, among other things, the economic situation of the country, the effect that granting a permit might have on existing businesses and the possible potential benefits to Bermuda from the grant of the permit (article 134 of the CA).

The permit will be subject to such conditions as the Minister may think fit to impose and, subject to any such conditions, a permit company which is a mutual fund shall have the power to market its shares or deal with holders of its shares in Bermuda. Similarly, a permit company which is a general partner in a limited partnership shall have the power to market interests in, or deal with the holders of interests in, such limited partnership in Bermuda. Finally, a permit company which is the manager of a unit trust scheme shall have the power to market units in, or deal with holders of units in, such unit trust in Bermuda. References to "mutual fund", "limited partnership" and "unit trust" mean a company, partnership or unit trust formed outside of Bermuda but having the characteristics of the same entities and structures under the relevant Bermudan laws (article 136 of the CA).

A permit company may not lease real property in Bermuda for a term exceeding 50 years. It may acquire shares, bonds, debenture stock, obligations, mortgages or other securities issued or created by a local company or a partnership that is not an exempted undertaking (subject to a 40% limitation on foreign ownership) or by any exempted undertaking, which is defined to include an exempted company, permit company or exempted partnership (article 2 of the CA).

A permit company must keep at its principal place of business in Bermuda sufficient records of its trading, business and financial transactions to show adequately the nature of its current or prior business (article 145 of the CA).

Bermuda Segregated Accounts Company

The Segregated Accounts Companies Act 2000 came into force in November 2000. It allowed for the registration of segregated accounts companies by standardized procedures - previously, segregated accounts companies were being brought into existence by the Private Act route. This can still be used when necessary; but most new formations are likely to be under the new Act.

Segregated accounts companies are mostly used in the insurance sector (where they are often called protected cell companies), for umbrella mutual funds, and in the e-commerce sector where each individual user of a set of trading systems can occupy a segregated space rather than having to register separately. Server farms would be a good example.

The Act specifies that any asset linked to a particular segregated account is held in a separate fund for the beneficial interest of the account holder, and does not form part of the general funds of the segregated account company in the event of liquidation or sale. The concept is not totally unlike that of the trust, with the segregated account company playing the part of the trust manager.

Registered insurers may make use of segregated accounts companies without permission; other types of company need to obtain permission from the Minister of Finance.

Trusts

Bermudan trusts are governed by The Trustee Act 1975 which is largely based on the English Trustee Act 1925. The Trusts (Special Provisions) Act 1989, another significant statute, introduced the concept of the "purpose trust" and brought Bermudan law still closer to English law. The Perpetuities and Accumulations Act 1989 increased the perpetuity period to 100 years. Foreign inheritance laws are specifically excluded, and there is provision for the non-recognition of foreign judgments. Bermuda has adopted the Hague Convention; the Trusts (Special Provisions) Act 1989 made some consequent adjustments to the law. Appeal is to the English Privy Council.

In general, trustees need not be resident in Bermuda; but one must be. The trust fund may comprise cash, land, securities, interests in property or other trusts. Non- resident trusts are not permitted to hold Bermuda currency, shares or security in local companies, or an interest in land in Bermuda without the prior consent of the Bermuda Monetary Authority.

Bermudan trusts are not required to be registered, and there is no stamp duty.

Mutual Funds, Unit Trusts

A mutual fund is defined as a company limited by shares, or another company having a share capital and incorporated for the purpose of investing the money of its members for their mutual benefit. Mutual funds are, in principle, regulated by articles 156A-156P et seq. of the CA. According to such regulations, a mutual fund company must declare its nature in its memorandum of association.

A mutual fund company may redeem or repurchase its shares without reducing its authorized share capital, utilizing paid-up share capital, share premiums or reserves. Premiums on redemption or repurchase of shares may be paid out of realized or unrealized profits, share premiums or reserves, in accordance with the by-laws, by reference to asset value of such shares. Mutual fund companies are also known as open-ended companies (article 3, Fifth Schedule of the CA, Part II).

The Companies (Amendment Act) 1995 amended the CA to exclude mutual fund companies from the application of those articles of the CA which allowed the public access to the register of members during business hours at the registered office of the company (articles 65(6) and 66 of the CA).

The Companies (Amendment) Act 1988 (Act 52) permits Bermudan mutual funds to adopt a scheme to promote their shares with the approval of the UK Securities and Investments Board (SIB) to the UK public in the same way as authorized UK unit trusts do. The (Bermuda) UK scheme provides for a Bermudan bank to act as the mutual fund’s custodian, while a separate and independent company manages the fund (articles 156I and 156L of the CA).

The Minister of Finance may certify a mutual fund to be of the UK class (article 156H of the CA). The SIB is gradually being replaced by the PIA (Personal Investment Authority).

Under the EUTPA, a direct taxes exemption may be guaranteed to a mutual fund as an "exempted company" for a period not extending beyond 31 March 2035 by arrangement with the Minister of Finance. A fee of BMD 165 is payable on the grant of the tax protection assurance. (Government fees regulations 1976).

Unit trust schemes are defined in article 1 of the Stamp Duties Act 1976 and Part II of the Fifth Schedule of the CA as arrangements made for the purpose of providing for potential investors facilities for their participation, as beneficiaries under a trust, in profits or income arising from the acquisition, holding, management or disposal of any property whatsoever. The Bermuda Monetary Authority Act 1969 classifies unit trusts, as defined above, as collective investment schemes under the general heading of financial institutions. As financial institutions, mutual funds and unit trusts are subject to the general supervision of the BMA, with regard to their establishment and operations. The BMA's statutory functions include the supervision, regulation and inspection of financial institutions operating in or from within Bermuda. The BMA is empowered to demand information and documentation to enable it to perform those functions (articles 20A, 21, 22 and 22A of the BMA Act, Third Schedule).

Under the EUTPA, a direct taxes exemption may be guaranteed to a unit trust scheme company as an "exempted company" by arrangement with the Minister of Finance. A fee of BMD 165 is payable on the grant of the tax protection assurance. (Government fees regulations 1976). However, under the tax protection legislation a unit trust (company) may only be tax exempt if the trustees are non-resident for exchange control purposes (article 3 of the EUTPA).

The Bermuda Monetary Authority (Collective Investment Scheme Classification) Regulations 1998 (BR 12/1998 the Bermuda Monetary Authority Act 1969) distinguish between three categories of collective investment schemes, as follows: (i) Part A – Bermuda Recognized Schemes; (ii) Part B – Bermuda Standard Schemes and (iii) Part C – Bermuda Institutional Schemes.

Part A of the regulations applies to mutual funds which adopt a scheme to promote their shares with the approval of the UK Securities and Investments Board to the UK public.

Part B of the regulations applies to most Bermudan collective investment schemes, while Parts B and C apply to institutional schemes.

A scheme having a minimum investment of BMD 100,000 per investor and a minimum initial offering size of BMD 50 million is exempted by Part C from the need to appoint a Bermudan custodian. The BMA has the authority to approve a custodian other than a Bermudan custodian for a collective investment scheme under Parts A and B; such approval is often given for schemes under Part B if the proposed custodian is a blue-chip financial institution and for those schemes with commodity-based investments. A Bermuda institutional scheme is required to appoint a local Bermudan administrator. A scheme under Part B may, subject to the approval of the BMA, appoint a foreign administrator. The BMA is responsible for the enforcement of the regulations.

Fees

Local Company Limited By Shares

A "local company" which is not Bermudan controlled must apply for a license to carry on a business in Bermuda (articles 114 and 114A of the CA). This type of license is granted entirely at the discretion of the Minister of Finance (article 114B of the CA), on payment of a fee of BMD 1,000. Subsequently an annual fee of BMD 1,000 is payable to the Registrar of Companies by 31 January (article 114C of the CA).

Exempted Company

Within a month of filing with the Registrar its memorandum of association, an "exempted company" must pay a registration fee. Thereafter an annual registration renewal fee must be paid by 31 January.

The aggregate of the capital and the share premium account constitutes the assessable capital on which the registration and annual renewal fees are based. The Registrar must be notified of the assessable capital, in Bermudan or US dollars.

The following are the fees payable by an "exempted company" under the CA:

Assessable Capital Fee
BMD12,000 BMD1,995
BMD12,001 - BMD120,000 BMD4,070
BMD120,001 - BMD1,200,000 BMD6,275
BMD1,200,001 - BMD12,000,000 BMD8,360
BMD12,000,001 - BMD100,000,000 BMD10,455
BMD100,000,001 - BMD500,000,000 BMD18,670
BMD500,000,001 or more BMD31,120

An "exempted company" managing unit trusts must pay additional initial and annual renewal fees of BMD 2,905 for each unit trust managed.

An "exempted company" which functions mainly as a holding company for other "exempted companies" engaged in insurance business is liable for registration and annual registration renewal fees of BMD 1,995, regardless of the amount of its assessable capital.

An "exempted company" which has been designated as a foreign sales corporation under the Internal Revenue Code of the United States is required to pay a fee of BMD 585, 1,180 or 1,980, depending on whether the company is designated by the Internal Revenue Code as a small foreign sales corporation, a regular foreign sales corporation or a small or regular foreign sales corporation which leases aircraft, respectively.

Management and Substance Requirements

Local Company Limited By Shares

The CA requires that the by-laws of each company provide for a quorum of directors (article 13 of the CA). The election of directors normally takes place at the first general meeting of the shareholders and thereafter at subsequent annual general meetings, but the existing directors may continue in office if for any reason the annual general meeting does not take place (articles. 70-72 of the CA). The directors may be elected or appointed in such other manner and for such term as may be provided for in the by-laws of the company (article 91 of the CA). Additional and alternate directors may be appointed by the elected directors if authorized by a resolution of the shareholders or, in the case of the appointment of alternate directors, by the by-laws (article 91 of the CA).

Bermuda Exempt Company

An "exempted company" must have (i) a minimum of one director ordinarily resident in Bermuda; (ii) a secretary ordinarily resident in Bermuda; and (iii) a resident representative ordinarily resident in Bermuda (article 130 of the CA). A secretary or resident representative so appointed may be either an individual or a company.

A resident representative is required to act as an agent for service of process in Bermuda and is entitled to receive notice of, attend, be heard at and receive minutes of all meetings of the members and the directors or any committee of the directors. It is the duty of the resident representative to report in writing to the Registrar within 30 days of becoming aware of any breach by the company of any provisions of the CA or any regulation thereunder which will have a material effect on the affairs of the company and any issue or transfer of shares made in contravention of any other statute.

Capital, Shares and Shareholders

Local Company Limited by Shares

The CA does not itself prescribe a minimum capital requirement for companies, but a minimum of BMD 12,000 is set by BR 30/1983. The capital need not be paid up unless required by the directors. All shares must be registered shares; bearer shares are not permitted for Bermudan companies (article 53 of the CA).

Subject to the by-laws, capital may be increased with shareholders’ approval. Capital may be reduced, subject to numerous conditions and to shareholders’ approval (articles 45 and 46 of the CA).

The registered office must be in Bermuda and may not be merely a post office box (article 62 of the CA).

Shares may be transferred in accordance with the by-laws (article 48 of the CA). It is the policy of the BMA that all transfers of shares in exempted undertakings must be approved by the BMA, unless the shares of the exempted undertaking are listed on an appointed stock exchange, in which case notification of a public offering or private issuance of shares is required.

A register of shareholders must be maintained in Bermuda, at the company’s registered office, or elsewhere if the Registrar so agrees; the register may be inspected there for a small fee (articles 65 and 66 of the CA). If a company’s shares are traded on a stock exchange outside Bermuda and/or have been offered for sale abroad following issue of a prospectus, a branch register may be kept abroad (article 65 of the CA).

A general meeting of shareholders must be held at least once in every calendar year. A special general meeting may be convened by the directors or demanded for special purposes by shareholders holding at least 10% of the voting rights. Subject to by-laws and to any restrictions in respect of any particular class of shares, shareholders are entitled to one vote per share held. A proxy may be appointed to vote on a shareholder’s behalf at a general meeting; where more than one share is held, one proxy vote per share is permitted, not necessarily by the same representative (article 77 of the CA). Resolutions concerning company affairs need not necessarily be approved by the shareholders in general meeting; they will be equally valid if made in writing and signed by all of the members (article 77A of the CA).

Dividends and other distributions out of contributed surplus may not be declared or paid if there are reasonable grounds for believing that the company is, or after the payment would be, unable to pay its liabilities as they become due or the realizable value of the company’s assets would thereby be less than the its liabilities (article 54 of the CA).