The domestic limited company form will be of interest to foreign investors only if they plan to purchase equity in an existing Bahamian business, set up a new business to trade within the Bahamas, or invest in Bahamian real estate through a corporate entity.
The Companies Act 1992 governs the formation of a domestic limited company. Under the act, a company may be incorporated by two or more persons signing a memorandum of association and filing it with the Registry of Companies. The name must include either the word Limited or the abbreviation Ltd and must be approved by the registry. Names cannot include the words bank, trust, insurance, or financial without an appropriate license from the Ministry of Finance and Planning.
Under the act, a company has all the rights, powers, and privileges of a person of full capacity.
A company may render financial assistance to its members, directors, officers, and employees or any other person in connection with the purchase of shares in the company and may purchase or acquire any of its own shares unless there are reasonable grounds for believing the company may be unable to meet its liabilities as a result of this action.
Shares need not have a par value and, when fully paid in, need not have distinguishing numbers. With exchange control permission, a company may issue bearer shares or warrants.
Annual returns detailing the members and proportion of Bahamian ownership must be filed with the registry, where it will be available for public inspection. The annual return need not include the company's financial statements.
The act provides that a private company must have at least two directors and a public company three, a public company being one whose shares are intended for offering to the public. Directors need not hold shares in the company. A list of all officers, directors, and managers must be kept at the registered office of the company, and a current copy of the list must be sent to the Registry of Companies.
Directors have considerable flexibility under the act. For instance, their meetings may be held by telephone.
Public companies must be audited annually. Private companies must also be audited, unless the shareholders unanimously agree to dispense with the audit.
Insider trading is an offense insofar as it applies to the securities of a public company.
The act contains provisions for mergers and consolidation of companies and for arrangements that include reorganizations and restructuring of companies and a separation of two businesses carried out by the same company. Permission of the courts is required.
Pre-incorporation written contracts entered into in the name of the company can be adopted by the company after incorporation.
A public company will be subject to additional requirements governing the allotment of shares and the commencement of business. It must also issue a prospectus, the contents and form of which are detailed in the act.
BRANCHES AND REPRESENTATIVE OFFICE
A foreign company may set up a branch in the Bahamas without difficulty, provided that the nature of its business does not put it in direct competition with a Bahamian business, as described in `Part 3, Foreign Investment, Foreign Investment Rules'. If the branch is to hold Bahamian real estate, however, or to engage in litigation within the Bahamas, it must be registered under the Companies Act 1992. In this case, information concerning the foreign company, such as its constitution documents and the names and addresses of its directors and officers, must be filed; stamp taxes and filing and legal fees must be paid; and a registered office in the Bahamas must be maintained. The annual cost of maintaining a registered foreign company in the Bahamas is generally about B$2,000 (including the annual filing fee). In addition, a business license fee will have to be paid if the branch trades in the Bahamas (see `Part 11, Taxation In The Bahamas, Business License Fees').
A representative in the Bahamas must be nominated to accept legal documents on behalf of the foreign company. A foreigner can be appointed as branch manager, provided that he or she is entitled to obtain a work permit.
The law does not require any particular branch accounting records to be maintained, and neither branch financial statements nor the financial statements of the foreign company of which it is a part need be filed or otherwise published.
Since Bahamian taxation will not have to be taken into account when setting up a Bahamian operation, there is little advantage to adopting a branch structure as opposed to a subsidiary company structure, and a branch can be converted into a subsidiary company at any time without any adverse tax consequences (apart from incurring stamp taxes) simply by forming a new Bahamian company.
Some distinctions are made in the Bahamas between trading and non-trading or representative branches. Since the Bahamas does not levy taxes on income or capital gains, these distinctions are of less importance than in most countries. However, representative offices can act without formality, while trading branches must generally be registered under the Companies Act, must obtain business licenses if trading within the Bahamas, and must comply with exchange control regulations.
PARTNERSHIPS
Partnerships may be formed by two or more individuals or companies. In most cases, no written agreement is required. The death of any partner automatically dissolves the partnership. Foreign investors do not normally use partnerships as investment vehicles, except in the case of some professional associations that require unlimited liability.
Both general and limited partnerships are allowed. In the case of a limited partnership, at least one of the partners must be a general partner with unlimited liability, a specific partnership agreement must be drawn up and registered, and the fact that the partnership is limited must be indicated in its name. One of the general partners must make a declaration before a public notary that a specific sum has been contributed by the limited partners. This declaration must be filed in the register of records. The limited partners may not participate in the partnership's management.
Partnerships trading within the Bahamas must pay business license fees (see `Part 11, Taxation In The Bahamas, Business License Fees').
The Exempted Limited Partnership (ELP) Act, which came into effect on 31 May 1995, enables the partnership aspect of mutual fund legislation to be fully employed. The ELP allows one or more partners, as limited partners, to limit their liability while the other partner or partners, as general partners, have unlimited liability for debts of the partnership. The ELP must have at least one general partner who, if an individual, must be a resident of the Bahamas or that, if a company, is incorporated under Bahamian law. An ELP must have a registered office in the Bahamas and have the words Limited Partnership or LP in its name. An ELP can conduct business anywhere in the world but cannot undertake business with the public in the Bahamas. However, this restriction does not extend to business with an IBC nor to business that is necessarily ancillary to the ELP's business that is outside the Bahamas.
An ELP is exempt from local tax, business license fees, and stamp duties for fifty years, but it must pay an annual fee of B$450.
Registration involves filing with the registrar a brief statement of the name, nature of business, period of duration, registered office address, and names and addresses of its general partners. The registration fee is B$850. A certificate must be filed each year, stating that no business has been done with the Bahamian public and that any and all changes to the registration document have been properly filed.
JOINT VENTURES
Joint ventures are generally operated on the basis of a contract covering the various parties' points. They may be managed by one of the participants or by a mutually agreed-upon third party. No information concerning the joint venture need be disclosed to the public.
No special rules relate to joint ventures. Exchange control and business license fee regulations must be complied with.
For long-term projects, joint ventures are likely to be organized as domestic limited companies (see `Part 9, Other Forms, Domestic Limited Companies').
PRIVATE TRUSTS
The concepts of trust law and administration are highly developed in the Bahamas, and many private trusts have been established. Although a trust is not a legal entity, a Bahamian trust is designated on establishment as resident or non-resident for exchange control purposes in the same way as a company.
A trust (sometimes called a settlement) is created by a legal agreement between the settlor and the trustee (or trustees) under which the trustee takes control of and holds the legal title to some or all of the settlor's assets and administers them for the benefit of the settlor or others (the beneficiaries) in accordance with the terms of the trust document. Trusts are widely used to protect individuals' wealth and to avoid survivorship problems.
A Bahamian trust is mainly governed by the terms of the Trustee Act 1995 unless the trust document specifically indicates otherwise, in which case English common law applies. As compared to the Trustee Act 1893, which it replaced, the 1995 act includes broader investment and general powers for trustees; broader indemnification provisions; provisions for the establishment of special purpose trusts; and certain exemptions from stamp duties, taxes, exchange control regulations, and registration requirements.
The trust theme has many variations. Broad discretionary powers may be given to the trustees or very strict rules laid down. Trusts may be revocable or irrevocable, and they are not limited to Bahamian beneficiaries.
A trust is a private arrangement between the parties concerned and need not be registered with any government offices. The legal fees for setting up a trust, depending on its complexity, range upward from B$1,000. No business license fees, filing fees, or registered office fees are normally payable.
Under the Trusts (Choice of Governing Law) Act 1989, a settlor, whether or not resident in the Bahamas, may expressly declare in the trust instrument that the laws of the Bahamas will be the governing law of the trust. When the terms of an existing trust and its governing law so provide, the governing law of that trust may be changed to that of the Bahamas.
The Fraudulent Dispositions Act 1991 facilitates the establishment of legitimate asset protection trusts in the Bahamas but defines the situations in which these trusts can be challenged. The Perpetuities Act 1993 modifies, clarifies, and codifies the rule against perpetuities as it pertains to future interests in property, thus making it easier to determine whether an established future interest offends the rule or a proposed future interest is likely to offend it.
COMPANIES LIMITED BY GUARANTEE
Companies limited by guarantee are essentially similar to companies limited by shares, but this form provides more flexibility in that the number of members may be reduced. (In a company limited by shares, this reduction can be effected only by application to the Supreme Court.) In practice, the members need merely guarantee a maximum amount to be paid into the company in the event of a winding up; that is the extent of their liability. The guarantee relates to the members themselves and not to the number of shares that they own.
In other respects, the same requirements apply for companies limited by guarantee as for companies limited by shares (see `Part 9, Other Forms, Domestic Limited Companies').
MUTUAL FUNDS
The Mutual Funds Act 1995 was brought into force 2 November 1995. Mutual funds operated in the Bahamas may be companies, unit trusts, or partnerships. Most mutual funds operated in the Bahamas are now formed as international business companies (see `Part 8, Choice of Business Entity') since this form allows for easy variation of capital. For licensing purposes, mutual funds may be classified as:
- Exempt mutual funds not requiring a license. These include mutual funds currently licensed in prescribed jurisdictions and mutual funds that have no more than fifteen investors.
- Authorized mutual funds. These mutual funds are listed on a specified stock exchange, and their investors must have invested at least B$50,000. These mutual funds are not required to be licensed but must be registered with the Securities Board, file their current offering documents, and pay annual fees.
- Licensed mutual funds. All other mutual funds must file their current offering documents, pay annual fees, and maintain registered offices in the Bahamas.
Administrators must be licensed under one of the following classifications:
- Exempt (not requiring a license). The license holder administers one fund.
- Restricted administration. The license holder may administer only those mutual funds specified on the license.
- Unrestricted administration. The license holder may act with respect to an unlimited number of regulated mutual funds.
Several mutual funds incorporated in other countries are administered in the Bahamas, usually by Bahamian trust companies.
Prospectuses offering units in mutual funds to members of the public must be filed with the Central Bank and must meet the bank's criteria concerning content and the reputation of the offer's sponsors.
BANKS AND TRUST COMPANIES
The government of the Bahamas actively encourages the presence of legitimate and reputable financial institutions. The legislation governing operations in this sector is the Bank Act 1909 and the Banks and Trust Companies Regulation Act 1965 (as amended).
A trust company is one that has fiduciary responsibilities and employs professionally trained officials to administer the trusts described in `Part 9, Other Forms, Private Trusts' or to administer other entities. A trust company is usually a department or subsidiary of a major bank.
A license to carry on banking or trust business in the Bahamas must be obtained from the Ministry of Finance and Planning. The applicant must submit several references as to its standing and repute and strictly follow the required filing procedures. In particular, the applicant must supply the name and address of the bank or trust and the location of its registered office (legal seat). If the registered office is located outside the Bahamas, the address of the principal office in the Bahamas, the name of the bank's authorized agent in the Bahamas, and the name of an alternate must be given and the financial year-end must be defined.
The applicant must also supply the names and professional qualifications of its auditors and the names, nationalities, financial and character references, and addresses of all its directors, officers, managers, and shareholders or inactive partners. Details of subsidiary companies, together with their addresses and authenticated copies of their incorporation documents, must be provided. References from a bank or trust company are required, the applicant's exchange control status must be disclosed, and audited financial statements for the two preceding years must be filed. In addition, a current statement of affairs, certified by a director, must be filed, along with a statement of the capital of any other company held, directly or indirectly, by the applicant entity.
Minimum capital requirements for companies in this sector vary according to the type of business to be conducted (see Table 5). Holders of public licenses may do business with any customer, but holders of restricted licenses may do business with stated customers only.
TABLE 5 - Minimum Capital Requirements for Banks and Trust Companies
TYPE OF BUSINESS MINIMUM CAPITAL REQUIREMENT Public licensee B$1,000,000 or 4% of its (bank, trust or total assets, whichever is banking and trust greater operation) Restricted licensee B$100,000 (bank, trust or banking and trust operation) Nominee trust B$10,000 Inactive entity None
The financial statements of all banks and trust companies incorporated in the Bahamas must be independently audited, and a copy of these statements must be filed with the Central Bank within four months following the end of the financial year. For banks and for banking and trust operations, a copy of the balance sheet and auditors' report must also be published in the Official Gazette. This requirement does not extend to pure trust companies.
Annual license fees charged by the government are shown in Table 6.
TABLE 6 - Annual License Fees
TYPE OF LICENSE FEE (B$) Authorized dealer license 100,000 (for banks conducting both resident and non- resident business in Bahamian and foreign currencies) Authorized agent license 60,000 (for trust companies acting as authorized depositories for resident and non-resident clients without reporting requirements to the central Bank. Authorized dealer and 160,000 agent license Public license (to carry 25,000 on a general banking or trust business or both) Restricted license (business conducted only with parties specified in the license): Bank 5,000 Trust 3,000 Banking and trust operation 5,000 Inactive entity's license 1,800
Credit unions may be established in accordance with the Co-operative Societies Act 1974. These unions are societies created for the promotion of their members' own economic interests (for example, to make small loans to members at low interest rates), and they may be established with or without limited liability.
INSURANCE COMPANIES
Insurance companies in the Bahamas operate under the Insurance Act 1969 (as amended) with its attendant regulations of 1970, the Non-resident Insurer (Exemption) Regulations 1978, and the External Insurance Act 1983 with its attendant regulations of 1984.
The 1969 act contains the following major provisions:
- Anyone conducting insurance business in or from the Bahamas must register with the registrar of insurance companies.
- Life insurance companies must have a paid-in capital of at least B$300,000, and non-life insurance companies must have at least B$140,000. Specified minimum net worth requirements must also be met.
- A registered office must be maintained in the Bahamas, and a principal representative of the insurance company must reside in the Bahamas.
- Financial statements must be independently audited and filed with the registrar of insurance companies within six months following the end of the financial year, and, in the case of resident insurance companies (as defined by the 1978 regulations), a summary must be published in the Official Gazette at the same time.
An initial registration fee of B$1,000 is payable, subsequent annual fees being 2% of local business underwritten.
The 1983 act was passed in an effort to encourage the establishment of foreign captive insurance companies in the Bahamas. The following provisions apply to these companies:
- Companies with a minimum of B$500,000 in premium income derived from an affiliate are exempt from the requirements of the 1969 act.
- All must register with the registrar of insurance companies.
- Paid-in capital must be at least B$200,000.
- Net worth must be maintained at the greater of B$100,000 or 20% of net income up to B$7 million plus 10% of any excess.
- Financial statements must be independently audited and filed with the registrar of insurance companies within six months following the financial year-end, together with a statement from the auditors that the insurance company has complied with the terms of its registration. A statement is also required from the directors confirming the completeness of the records and other information supplied to the auditors.
- A statement signed by two directors and the underwriting manager confirming that the insurance company has complied with the terms of registration must be provided.
The annual fees payable by foreign captive insurance companies are B$2,500 per company and B$650 per underwriting manager.
All communications by a captive insurance company with the registrar of insurance companies, including its financial statements, are confidential.
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.
