The BVI Business Companies Act (the Act) is the governing statute concerning the formation of all businesses in the British Virgin Islands. The Act is divided into 250 different sections and organized in 15 different parts or chapters. Those familiar with other business statutes, such as the Model Business Code, will notice similarities between the lay of the Act and the lay out of other business statutes: The Act begins with the basic concepts regarding formation of a company and moves into more narrow and specific topics such as mergers and acquisitions.
History and Purpose
The BVI Business Companies Act is relatively new legislation. It was enacted on January 1, 2005, replacing the former business statute, the International Business Companies Act, that had been in effect in the British Virgin Islands for 20 years prior. The purpose of enacting the BVI Business Companies Act was to update the country's existing business law in order to align it with modern international business law. As such, the BVI Business Companies Act significantly re-hauled the existing business statute to allow for incorporation of more types of businesses and to retain the benefits of incorporating in the British Virgin Islands.
Company Types Able to Incorporate Under the Act
Under the International Business Companies Act, only limited liability companies were able to incorporate in the British Virgin Islands. (Note: The Act uses the term "company limited by shares," but this term essentially means the same thing as a limited liability company; that is, a company whose members are liable for the company's debts only to the extent of their investment in the company.) The BVI Act significantly expands on the number of companies able to incorporate in the British Virgin Islands. Seven types of companies are now able to incorporate: limited liability companies; nonprofit organizations (both authorized or unauthorized to issue shares); unlimited companies both authorized and unauthorized to issue shares; restricted purpose companies; and segregated portfolio companies.
Advantages of Incorporating Under the BVI Act
Companies formed under the Act are not required to pay taxes to the British Virigin Islands. This can be a huge selling point for companies weighing their options on where to incorporate. Compare this rule with the tax laws in the United States: Corporations in the United States are subject to a form of "double-tax" in that both the corporation as a legal entity must pay taxes and the owners of that corporation must also pay their own separate income taxes from income derived from the corporation.
Other key features of the Act include the facts that businesses need not file annual returns or accounts and that incorporation under the act is relatively quick and can be accomplished within two weeks.
Incorporate Under the Act
The registered agent of the business must file certain papers with the British Virgin Island's Registrar of Corporate Affairs. The papers include a memorandum that sets forth required basic information of the business such as the business' name, the type of business, and the names and addresses of the registered agent and his/her office. The registered agent must also sign a consent form that certifies he is willing to act in the capacity of a registered agent. A filing fee must be paid and the clerk at the registrar office will then examine the papers and determine if all the information is correct. Once filed, the business is essentially born.
Enacting the Act Smoothly
The BVI Business Company Act practically re-wrote the existing law on businesses in the British Virgin Islands. As such, the legislators had to figure out a way to smoothly execute the act's enactment without causing chaos as to what to do with corporations formed under the old act or formed while the new act was pending. To combat this, for the first two years of its enactment, both the BVI Business Company Act and the International Business Company Act were in effect. The transition seems to have progressed relatively smoothly, but problems may crop up in the courts regarding this transition period when determining which law controlled certain disputes should discrepancies between the two acts arise.
