An investor setting up permanent operations in the Bahamas can do so, either alone or as a member of a joint venture; through a limited company, a partnership (general or limited), a private trust, a branch or representative office of a foreign company; or even-if an individual-as a sole trader. Most foreign investors, however, are likely to use the islands as a base for operations outside the Bahamas and will normally choose to organize in the form of an international business company, a type of limited liability company. This chapter, therefore, concentrates on that form. Regulations concerning domestic entities, banks, insurance companies, and other specialized entities are summarized in `Part 9, Other Forms'.
INTERNATIONAL BUSINESS COMPANIES
The distinguishing feature of an international business company (IBC) is that it must not carry on business with any person resident in the Bahamas. An IBC is entirely free of all Bahamian taxes and pays only an initial filing (registration) fee and thereafter an annual filing fee, at rates often advantageous compared with those payable by domestic limited companies. IBCs are incorporated under the International Business Companies Act 1989. An IBC, like any other limited liability company, provides legal independence from and limited liability for its owners, as well as ease of transfer of ownership of interests. The ownership of an IBC can be kept confidential if necessary. Legally, a publicly held IBC is no different from one that is privately or closely held, except that the issue of shares in an IBC to members of the public (rare to date) requires Central Bank approval.
Members and directors of an IBC do not have to be non-residents, and management control need not be exercised outside the Bahamas. Indeed, the IBC can be managed, controlled, and operated from the Bahamas, if required. Moreover, an IBC is allowed to do any of the following within the Bahamas, despite the general prohibition from doing business with Bahamian residents:
- Maintain bank accounts in the Bahamas
- Make or maintain contact with professional firms
- Maintain books and records
- Hold meetings of directors or members
- Hold a lease of real estate for use as an office
An IBC may not, however, do any of the following:
- Own an interest in real property situated in the Bahamas
- Carry on business as a bank or an insurance or reinsurance company
- Carry on the business of providing registered offices for other companies
Besides its tax-free status, an IBC has a number of other advantages, including the following:
- It requires only two incorporators and one shareholder following its formation and only one director. Moreover, a director may be a corporate entity.
- Its minimum issued and paid-in capital can be two fully paid-in shares. Requirements as to share capital are liberal.
- It is required to file only minimal information with the Registry of Companies.
- It can amend its articles of association by resolution of either the members or the directors.
- Its name can end with any words (or their abbreviations) indicating limited liability.
- It can hold meetings of directors or members without difficulty.
- Its books and records can be maintained abroad.
- It is not required to prepare financial statements or appoint auditors.
- It can continue in existence even if transferred to another jurisdiction. Moreover, a foreign company that qualifies as a Bahamian IBC may register under the International Business Companies Act.
The most significant aspect of the 1994 amendment to the IBC Act was the introduction of the Limited Duration Company (LDC), a hybrid of the IBC. This unique corporate structure is also known as a limited liability company in the United States. The basic features are the same as an IBC except that the life of the company is limited to thirty years or less. The name of the company must also clearly state its status as an LDC. The transfer of a share or interest of a member of an LDC requires the unanimous resolution of all other members if stipulated in the articles of the company. The articles may also provide for certain members to manage the company on the basis of their share or other ownership interest. Properly structured, the LDC can have the characteristics of a partnership and be treated as such for tax purposes in the United States.
IBCs can be used for a variety of purposes, some of which are described below.
HOLDING COMPANIES
Since there is no income tax in the Bahamas, a holding company is able to use the profits from its operating subsidiaries to finance its international expansion. Alternatively, foreign activities can be centralized through a Bahamian intermediate holding company, which in turn owns the stock of various foreign subsidiaries conducting active trade or business in other countries. In such situations, the Bahamian company serves as the bank or clearinghouse for the group's international business-collecting earnings from some subsidiaries, investing in others, or expanding in new countries-all without paying any taxes in the Bahamas.
Before a Bahamian company commences foreign operations, however, it is essential that its management and advisers study the tax laws and decisions of the foreign countries in which the Bahamian company or its subsidiaries will be doing business. By careful planning of group operations, it should be possible to keep foreign income taxes to a minimum.
OFFSHORE TRADING COMPANIES
If selling and servicing operations (as well as patents and royalties) are placed in an offshore trading company, a proportion of the profits from sales (plus royalties and service charges) can be accumulated in that company free of tax, except for any foreign withholding taxes.
Conversely, an exporter faced with dumping duties when attempting to sell to a group company in another country at prices below world levels can avoid the duties by selling through a Bahamian offshore company and realizing the intercompany profit there rather than in the company in the country imposing the dumping duties. What would otherwise be paid as dumping duty can therefore be accumulated, free of tax, in the Bahamian offshore company.
INVESTMENT COMPANIES
Offshore companies can limit the taxes that they pay on dividend and interest income to the withholding tax deducted by the country in which the funds are invested. For example, tax on investments in the United States would be limited to 30%, and tax on investments in Canada to 25%.
SHIPPING COMPANIES
The favorable regime in the Bahamas for shipping companies has been described at `Part 2, Incentives and Financing, Investment Incentives'. Shipping companies are often incorporated as IBCs.
MUTUAL FUNDS
IBCs provide an ideal vehicle for the formation of mutual funds, as described in `Part 9, Other Forms, Mutual Funds'.
FORMATION OF AN INTERNATIONAL BUSINESS COMPANY
The formation process is usually entrusted to professional advisers, who prepare the memorandum and articles of association described below. It is normally possible to incorporate an IBC within a few days. Only two founders (called subscribers) are required for the formation of an IBC; these founders can be individuals or legal entities. They are not required to visit the Bahamas to form the IBC but can act through nominees.
An IBC must maintain its registered office or legal seat in the Bahamas and must appoint a resident registered agent. A registered office fee will be payable, ranging from B$400 to B$1,500, depending on the institution or firm that provides the registered office. This fee covers the provision of a registered agent and of one or more directors.
MEMORANDUM AND ARTICLES OF ASSOCIATION
An IBC is incorporated following the preparation of a constitution document known as the memorandum of association. Another document, the articles of association, governs the internal regulations of the company, the rights of the shareholders, and the powers of the directors and officers.
The IBC comes into existence when these documents have been submitted to the Registry of Companies. After incorporation of the IBC, a single shareholder can hold all the shares. On the other hand, there is no upper limit to the number of shareholders an IBC may have.
COMPANY NAME
The name of the IBC may be in any language using roman lettering. The final words must indicate that the entity has limited liability (such as limited, corporation, incorporated, societe anonyme, or sociedad anonima). The words finance, bank, or trust must not be included, nor may any words that imply a connection with royalty. It is necessary to obtain the approval of the Registry of Companies for the proposed name. The registry has established a twenty-four-hour telephone hotline for the reservation of names-telephone: +1 (809) 322-7147; telecopier: +1 (809) 322-5553.
COST OF INCORPORATION
The total cost of incorporating a Bahamian IBC, assuming the minimum practical share capital of B$5,000, approximates B$900, including the associated professional fees. Thereafter, an annual filing fee is payable to the Registry of Companies for maintenance of the company's entry in the companies register (see `Part 11, Taxation In The Bahamas, Filing Fees').
CAPITAL OF AN INTERNATIONAL BUSINESS COMPANY
The share capital of an IBC can be denominated in any currency. In theory, each of the two subscribers required on formation need take up only one share, so that the minimum capital of an IBC need be only B$0.02 or the equivalent in another currency. Since the formation fee is the same for any amount of share capital up to B$5,000 (or its equivalent), the amount of the fee tends in practice to be the minimum capital registered. Shares are normally issued with a nominal or par value of B$1 each, but any other par value in any currency can be chosen, or no-par-value shares can be issued. Shares with a par value may be issued at a premium (paid-in surplus). Shares may be in either registered or bearer form.
Subscriptions for shares need not be in cash but may be in the form of real estate or other assets. Even services rendered or to be rendered can constitute a valid form of subscription. Non-cash subscriptions are not subject to an independent valuation or audit.
An IBC can freely acquire or redeem its own shares.
There are no provisions concerning the distribution of an IBC's profits. Accordingly, transfers to a non-distributable legal reserve, as found in some countries, are not required by law, and interim and final dividends can be freely declared by the directors in cash or in kind or in the IBC's own scrip.
MANAGEMENT OF AN INTERNATIONAL BUSINESS COMPANY
An IBC can be managed by a sole director or a board of directors, appointed (and subject to dismissal) by the shareholders. The board may appoint officers such as a president or chief executive officer, secretary, and treasurer; these officers may be members of the board but need not be.
Directors do not have to be Bahamian nationals or residents of the Bahamas; if they are not Bahamian nationals, however, they will need work permits, as described at `Part 7, Employment Law and Practice, Employment of Foreigners', if they have to come to the Bahamas in the course of their duties. Corporate bodies may act as directors.
Directors or officers do not have to disclose any personal interests they may have in contracts with their company. Moreover, directors or officers normally have no personal liability for any losses sustained by the company as a result of their activities.
MEETINGS AND VOTES IN AN INTERNATIONAL BUSINESS COMPANY
There is no statutory requirement for an IBC to hold meetings of either shareholders or directors; in practice, requirements are stated in the articles of association. Usually, an IBC's articles will allow for meetings of shareholders and directors to be held anywhere in the world, although it is possible that another country's tax authorities may deem the IBC resident in that country as a result of holding directors' meetings there.
Shareholders may vote in person, by written proxy addressed to the secretary of the IBC, or even by telephone conference call. Shareholders' voting rights cannot be restricted. A resolution, even on a fundamental matter such as the amendment of the IBC's memorandum or articles of association, can be passed by a simple majority of shareholders present in person or by proxy. If the articles of association so permit, such fundamental decisions can even be made by the directors instead of the shareholders.
Directors are not permitted to vote by proxy, but they can appoint alternates to attend board meetings and vote on their behalf, sign copies of resolutions in writing, or participate in meetings held by electronic means.
PUBLICATION OF INFORMATION BY AN INTERNATIONAL BUSINESS COMPANY
Only a minimum of information concerning an IBC need be made public. Although the IBC's existence is recorded at the Registry of Companies, the only documents that have to be filed there are its memorandum and articles of association, a copy of its certificate of incorporation, and a statement containing the name and address of its registered agent in the Bahamas. No names of directors or shareholders need be disclosed, and there is no requirement that annual financial statements be published, either by filing at the Registry of Companies or by other means.
An IBC is not required by statutory regulations to include any particular information on its letterhead or other business documents.
CORPORATE REORGANIZATION
Reorganizations and liquidations can be effected by the directors of an IBC and need to be reported to the Registry of Companies merely as a formality. There are no requirements that an IBC must be liquidated (wound up) if its losses exceed a stated proportion of its share capital; all liquidations are voluntary matters within the powers of the directors.
Mergers can also be effected by the directors of the companies concerned. The surviving or continuing company in a merger succeeds to all the rights, privileges, and liabilities of the absorbed company or companies. The Registry of Companies must be notified of the merger within thirty days; it will then issue a certificate of articles of merger and will remove the name of the absorbed company or companies from the register.
A company in financial difficulty may agree to compromises or compositions with its creditors. These may be either informal or subject to supervision by an arbitrator or the Supreme Court.
A domestic limited company that qualifies as an IBC may be converted into an IBC.
LIMITED DURATION COMPANIES
Under an amendment to the International Business Companies Act, an IBC may apply at any time to be registered as a limited duration company (LDC) for a fee of B$200. The words Limited Duration Company or LDC must appear in the name. The duration of the company cannot exceed thirty years, and, when an existing company elects to become an LDC, this period extends from the date of notification of the registrar. The company may, by resolution, cease to be an LDC, and the registrar, upon notification, will issue a certificate for a fee of B$200. In all other respects, an LDC is virtually identical to an IBC.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
