Structure your BVI company shareholding to eliminate or reduce delays associated with probate
Ease of operation and flexibility are two of the most attractive features of a BVI business company (BVIBC). However, the death of a shareholder can cause disruption in company operations, whether the BVIBC is a stand-alone entity or part of a group. This is often most acute when the BVIBC has a single person as sole shareholder and director, paralyzing the company and making decisionmaking impossible until the probate process is complete.
Forward planning in the structure of the BVIBC can provide certainty and a smooth transition on the death of a shareholder. Below are a few options to incorporate in BVIBC structures to mitigate potential disruption on the death of a shareholder.
Appoint a Reserve Director
The BVI Business Companies Act provides for the optional appointment of a reserve director, where an individual is the sole shareholder and also the sole director of a company to act in place of the sole director upon his death. The reserve director must consent in writing to be nominated as a reserve director, and this nomination may be revoked, or the reserve director may resign. The nomination of the reserve director ceases to have effect if the sole shareholder/director ceases to be the sole shareholder/director other than by reason of death. Therefore, the conditions for effective maintenance of a reserve director ought to be periodically reviewed by the company.
The initial shareholders or shareholders may need to retain control over the operations or assets of the BVI business company for a variety of reasons. This control can be retained while avoiding probate and its consequences by the issue of two different classes of shares – AB shares – where the B shares have no voting rights until the death of all holders of the A shares. These provisions would need to be incorporated into the Memorandum & Articles of Association of the company. While the best point to do this is at the time of formation, this can also be achieved by amendment of the Memorandum & Articles of Association. You should always take legal advice to ensure compliance with the procedure for amendments set out in the BVIBC Act and the Memorandum & Articles..
Issue shares subject to a condition of forfeiture upon death
A variation on the issue of AB shares is where shares are forfeited and cancelled upon the death of the shareholder and not subject to re-issue. The director or reserve director can issue new shares, or if combined with AB shareholding structure, the B shares will now be activated.
Appoint a corporate trustee shareholder
Another option is to have shares held in a trust which is administered by a corporate trustee. There are a number of trust options for this, such as the VISTA trust, a purpose trust, or a private trust company. The settlor could be one of the beneficiaries of the trust and various powers could also be reserved to him or her, such as the power to replace the trustee and overriding powers of appointment. It would also be advisable for the settlor to put a non-legally binding letter of wishes in place in the event of their death or incapacity. In any event, the trustee will have significant discretion as to how to deal with the shares.
Where probate is required
If no forward planning steps have been taken, probate will be necessary when a shareholder dies. The probate process, whether there is a will, specific to the BVI shares or if it is necessary to apply for Letters of Administration, takes approximately three months from the date of filing, in most cases. Prior to filing, it is necessary to complete various affidavits and supply other supporting documents, such as the original or court-certified death certificate of the deceased shareholder. The application should be made by the beneficiary entitled to the shares of the deceased.
Empower the personal representative to make share transfers
The Memorandum & Articles of Association may include a specific clause which empowers the registered agent of the company to accept a share transfer from the personal representative of the deceased shareholder and update the register of members accordingly where the deceased shareholder was also the sole director of the company at the time of his death. If there is no such provision, even after probate is granted, an additional step may be required to have the beneficiary's name reflected in the company's share register as holder of the shares – rectification of the register.
Rectification of the Register
In circumstances where
- there is no living director and the regulations of the articles of association of a company stipulate that share transfers are subject to the approval of a director or
- where the sole director was also the sole shareholder and he dies,
the personal representative of the deceased's estate can make an application to the BVI court to rectify the register of members to enter his name or the name of some other person as a shareholder. Once a shareholder is so registered, the shareholder can appoint new directors.
BVIBCs should consider revisiting their structure and procedures to determine whether any of the forward planning mechanisms outlined above are necessary or desirable for the company. If you have further questions or seek further information or assistance in planning ahead for probate, the O'Neal Webster team stands ready to assist you.
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.