To facilitate the activities of international business, numerous entities are incorporated or formed in Bermuda each year.
The characteristics and nature of these entities vary; the focus of this article is on companies governed by the Companies Act 1981, which are the most prevalent type of entity used by the international business sector in Bermuda.
Any person or persons in compliance with the provisions of the Act can incorporate a company in Bermuda. These companies can be limited by shares, limited by guarantee, or have unlimited liability.
Where a company is limited by shares, the financial accountability of its shareholders is limited to the capital they invested and no more.
A company that is limited by guarantee does not have any shareholders but instead is owned by members called guarantors, who agree to pay a nominal amount in the event the company is ended. This is a specific form of company usually used by non-profit organisations.
On the other hand, members or shareholders of unlimited liability companies are liable for all debts and other liabilities the company generates, regardless of how much capital each contributed.
Bermuda companies fall into two principal categories: companies incorporated by Bermudians to trade primarily in Bermuda and companies incorporated by non-Bermudians for the purpose of conducting business outside of Bermuda.
The companies in the first instance are known as local companies and the latter companies are known as exempted companies.
Local companies are subject to the ‘60/40 rule’, which requires them to be controlled by Bermudians.
As provided for in the Act, the percentage of Bermudian directors, and the percentage of the company’s shares beneficially owned by Bermudians, must be at least 60 per cent in each case.
Local companies can be exempted from the ‘60/40 rule’ by obtaining a licence from the Minister of Finance, who has a statutory duty to take certain factors into consideration when coming to a decision including the economic situation in Bermuda and the due protection of persons already engaged in business in Bermuda.
Exempted companies are so-called because they are exempted from those provisions of the Act that stipulate that at least 60 per cent of the equity and directorship must be beneficially held by Bermudians.
In general terms, the Act restricts an exempted company from carrying on business in Bermuda except to the extent that it is so authorised by its constitutional documents and has been granted a licence by the minister, who will form a view as to whether or not the granting of such a licence is in the best interest of Bermuda.
Notwithstanding the foregoing, there are certain activities that are expressly excluded from the requirement for a licence such as doing business with other exempted undertakings.
In certain instances, companies incorporated outside of Bermuda seek to “engage or carry on trade or business in Bermuda”. These companies are known as overseas companies, and may only carry on trade or business in Bermuda with permission from the minister. The overseas company may be looking to establish its principal business office or, more usually, a branch office in Bermuda.
An overseas company will be deemed to be engaging in, or carrying on, a trade or business in Bermuda if it occupies premises in Bermuda, or if it makes known by way of advertisement, or by an insertion in a directory, or by means of its letterhead, that it may be contacted at a particular address in Bermuda, or if it is otherwise seen to be engaging in, or carrying on, a trade or business in or from Bermuda on a continuing basis.
An overseas company will not be deemed to be carrying on business in Bermuda simply because meetings of its officers or shareholders are held in Bermuda, or because the company acquires, holds and deals in all types of securities issued or created by a Bermuda entity.
An overseas company with a permit issued by the minister is known as a “permit company”.
The international business sector is thriving in Bermuda; a brief look into the Act has provided an illustration of how varied and diverse the presence of companies are in Bermuda, whether they do business within our shores or simply from our shores.
Authored by trainee Kaisha Wilson, a member of the Corporate department at Appleby.