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Isle of Man Companies Act 2006 - New Corporate Vehicle

Background

The Isle of Man company legislation has historically been based on English law and formed the basis for existing Isle of Man Companies Acts 1931-2004.

The Isle of Man Companies Act 2006 which came into force on 1 November 2006 has introduced a simplified corporate structure based on the International Business Company model adopted in other international centres such as Bahamas, Barbados and the British Virgin Islands. Although the 2006 Act maintains established concepts, it does offer different approaches to traditional company law formalities.

Key Features

• no requirement for authorised share capital;
• no capital maintenance requirements (subject to satisfaction of a solvency test);
• no prohibition on the giving of financial assistance;
• reduced compulsory registry filings;
• less prescriptive accountancy requirements;
• no distinction between public and private companies;
• simplified offering document requirements;
• single directors permitted
• corporate directors permitted (subject to holding appropriate licence issued by Isle of Man Financial Supervision Commission)
• no requirement to hold AGMs;
• availability of transfer of domicile procedures;
• re-registration procedures available;
• merger and consolidation procedures available.

Types of Vehicle Available

As with previous legislation, a company formed in accordance with the 2006 Act is a legal entity in its own right separate from its members and will continue in existence until it is dissolved.

A company can be incorporated, registered or continued under the Act as:

• a company limited by shares;
• a company limited by guarantee;
• a company limited by shares and by guarantee;
• an unlimited company without shares; or
• an unlimited company without shares.

Agent, Office, and Incorporation

A 2006 Act company is required to have both a registered agent in the Isle of Man and a registered office address in the Isle of Man. The agent must have an appropriate licence granted by the Isle of Man Financial Supervision Commission pursuant to the Isle of Man Fiduciary Services Acts 2000 and 2005. Grant Thornton (Isle of Man) Limited holds the requisite licence to act as a registered agent.

Only registered agents are permitted to incorporate 2006 Act companies by submitting to the Isle of Man Registry a proposed memorandum and articles of association, leading to registration.

Directors

A key feature of the 2006 Act includes the provision for a company to have a single director which may be an individual or body corporate (subject to holding appropriate licence issued by Isle of Man Financial Supervision Commission).

As is the case of a normal company, individual or corporate directors face the same duties by common law as well as fiduciary to act in the best interests of the company and for proper purposes. Directors exercise their powers by resolutions passed at a board meeting or written resolution.

Members

Single member companies are permitted under the 2006 Act. The Act also streamlines resolutions by removing reference to “ordinary”, “special” and “extraordinary”. Members can exercise their powers by a meeting of the members or by written resolution. For both a director’s and member’s meetings, the 2006 Act permits telephonic or electronic meetings. Written resolutions can be consented to in writing, email, telex, fax or other electronic communication.

Shares

The 2006 Act provides that shares may:

• be convertible, common or ordinary;
• be redeemable at the option of the shareholder or the company or either of them;
• confer preferential rights to distributions;
• confer special, limited or conditional rights, including voting rights, and/or
• entitle participation only in certain assets;

and that a company may:

• issue bonus shares and nil or partly paid shares;
• issue shares with or without a par value;
• issue shares in any currency (if the shares have a par value);
• issue shares numbered or unnumbered; and/or
• issue fractional shares.

As with the 1931-2004 Acts, bearer shares are not permitted.

Offering Documents

The requirements for this are far less regulatory than in previous company acts, and any company can offer its securities to the public, provided that the material information relating to the offer is fair and accurate and contains all material reasonably expected.

Distributions and the Solvency Test

A definition of “distribution” is introduced meaning the direct or indirect transfer of company assets or the incurring of a debt by a company to or for the benefit of a member (e.g. dividends and redemption, purchase or other acquisitions by a company of its own shares).

Directors can authorise a distribution to members provided that they are satisfied the company will meet the solvency test after the distribution.

Accounting Records

A 2006 Act company will face fewer requirements than 1931-2004 companies. Reliable financial records must be kept which give an accurate financial position of the company and invoices, contracts and other information are required to be held.

There is no requirement to file financial statements with the Isle of Man registry.

Statutory Books

Normal statutory books are required to be kept:

• memorandum and Articles of Association;
• register of members;
• register of directors;
• register of charges;
• copies of all notices and documents filed with the Registrar for the previous 6 years;
• minute books for directors and members must also be kept.

Filing Requirements

The 2006 Act company will not have to file:

• a change in director as they occur;
• any increase or reduction in its share capital;
• any alteration to its share capital;
• any allotment of shares.

The requirement to file member’s resolutions has also been relaxed.

Re-registration

The 2006 Act contains relatively simple procedures to enable:

• a 2006 Act company to be re-registered;
• a 1931-2004 Acts company to be re-registered as a 2006 Act company;
• a 2006 Act company to be continued in a country or territory outside the Isle of Man and discontinued under the Act;
• a foreign company to be continued in the Isle of Man as a 2006 Act company;
• companies to be merged or consolidated or to be subject to a scheme of arrangement; and
• a company which has been constituted as a company limited by shares to be converted into a protected cell company.

Evaulation of 2006 Act

Since the first incorporation of a company under the Isle of Man Companies Act 2006 legislation in November 2006, there have been almost three thousand NMVs either incorporated as new companies or re-registered from 1931-2004 Act companies. The 2006 Act companies have been the preferred company of choice for many new clients and NMVs have operated well side by side new and existing 1931-2004 Act companies.

If you require further information please contact:

Dennis McGurgan
E: dennismcgurgan@grantthornton.co.im
T: +44 (0)1624 639494
F: +44 (0)1624 662249