ISACs in Bermuda: An innovative option for business owners
Bermuda’s well-earned reputation as a pre-eminent offshore financial centre is due in part to its sophisticated legal framework that supports a variety of business structures.
Among the various corporate structures available, the incorporated segregated accounts company (ISAC) offers a unique and flexible solution for businesses seeking to compartmentalise their operations and has become a versatile and attractive option for new and existing business owners.
This article provides an overview of ISACs in Bermuda, highlighting their key features and benefits.
The Incorporated Segregated Accounts Act 2019, which came into effect on January 15, 2020, exists as stand-alone legislation and is an advancement to the Segregated Accounts Companies Act 2000, while also incorporating key features of the limited liability company.
An ISAC is a corporate entity that allows for the segregation of assets and liabilities into distinct incorporated segregated accounts.
Each account operates independently, providing a level of protection for the assets held within it.
This segregation can be particularly beneficial for businesses engaged in multiple activities, such as insurance companies that want to segregate different lines of business or to protect policyholder funds.
Similarly, it can benefit those seeking to protect the interests of different stakeholders, such as investment funds, which would allow for the segregation of different investment strategies or client portfolios.
One of the primary advantages of using an ISAC in Bermuda is the ability to mitigate risk effectively.
By segregating assets into different accounts, businesses can isolate potential liabilities and reduce their overall exposure.
This can be especially valuable for companies operating in high-risk industries or those involved in complex financial transactions.
Additionally, ISACs can be used to protect assets from creditors, litigation, or other potential risks, providing a valuable layer of asset protection.
When securing a loan with a charge, you can choose to register it against either the entire ISAC or a specific ISA. This greater precision offers more flexibility in lending arrangements.
If an ISAC is liquidated, the ISAs remain unaffected. Similarly, winding up an individual ISA doesn’t impact the other ISAs within the ISAC structure.
Furthermore, ISACs provide a high level of investor protection. The segregation of assets ensures that the interests of individual investors are protected, reducing the risk of cross-contamination and enhancing investor confidence.
This can be particularly important for businesses that rely on external funding to support their operations.
ISACs can also be used to streamline operations and improve efficiency. By segregating assets and liabilities, businesses can gain a clearer understanding of their financial position and make more informed decisions.
The knock-on effect of this is cost savings, enhanced risk management, and improved overall performance.
ISACs and ISAs offer greater flexibility than segregated accounts as each account within an ISAC is a separate legal entity.
While segregated accounts are limited to internal transactions within the same ISAC, ISAs can be registered as separate companies, allowing for transfers between ISACs, and granting them the power to engage in external mergers, amalgamations, or even discontinuations in other jurisdictions.
This added flexibility provides ISAs with more options for future transactions compared to segregated accounts.
The tax efficiency of ISACs is another compelling reason for businesses to consider this corporate structure. Bermuda offers a favourable tax environment, with no capital gains tax or inheritance tax.
Although corporate income tax is to be introduced next year, this structure can significantly reduce the overall tax burden on a business and enhance its profitability.
Should you have a business idea that you wish to materialise, or already own multiple businesses, an ISAC may be the right business structure for you due to its ability to manage risks, protect assets, and enhance operational efficiency.
First Published in The Royal Gazette, Legally Speaking column, August 2024
