Knowledge

The British Virgin Islands ("BVI") is the leading offshore incorporation jurisdiction with over 360,000 active companies as of Q3 2023. There are a number of features which lead clients and their advisors to choose to incorporate in the BVI and this briefing will examine some of these advantages.

Ease of operation

BVI companies are simple to set up and are designed to be operated with ease. Key features include:

Simple low cost incorporation and maintenance

BVI companies can be set up quickly with low incorporation costs and annual costs. When a corporate solution is required, a BVI company can be set up quickly, and their ongoing costs are minimal, permitting clients to structure their operations in a cost-effective manner.

Flexible company legislation

The BVI is an incorporation jurisdiction, being the offshore equivalent of Delaware, and its corporate legislation is designed to facilitate the incorporation of companies and their ease of management. The key corporate statute is the Business Companies Act (the "BCA"), which is a permissive piece of legislation, permitting companies to be operated with minimal red tape. The permissive nature of the BCA allows for BVI companies to be tailored to the needs of clients and transactional requirements with ease.

Tax neutrality

The BVI is a tax neutral jurisdiction and BVI companies are not subject to income tax, capital gains tax, withholding tax or stamp duty. BVI companies may be used in corporate structures, or to facilitate corporate transactions, without a further layer of tax being introduced.

No exchange controls

There is no foreign exchange control legislation or regulation in the BVI, enabling BVI companies to transact freely without impediment.

English language

The BVI is an English language jurisdiction, enabling the smooth facilitation of international deals. Additionally, given the BVI's position as a leading international incorporation jurisdiction, the BVI also permits companies to have both an English and a foreign language, or foreign character, name.

Flexible corporate law

No concept of capital

BVI companies incorporated under the BCA do not have a concept of capital, instead, a BVI company is authorized to issue a specified number of shares. The absence of a concept of capital allows BVI companies to be operated with administrative ease. For instance, there is no requirement to follow a procedure or apply to the court to reduce the company's capital, as the concept does not apply.

Flexibility on distributions

As a BVI company does not have a share capital, the procedure on declaring dividends or otherwise making distributions is simple. There is no requirement to pay a distribution from a specific source, or out of available profits. Instead, a distribution may be made provided that a simple solvency test is complied with.

No prescription regarding accounting methods

BVI companies are generally not required to have audited accounts, neither are they required to adopt any particular accounting rules. This provides commercial flexibility, as companies are free to adopt the accounting methodology which is most suitable to their business.

No requirement for local directors or general partners

The BVI does not impose a requirement for companies to have local directors, or partnerships to have local general partners, save in limited cases involving regulated entities. This permissive approach ensures that no additional costs or impediments are imposed, and clients are free to manage their entities in accordance with their own requirements.

Ability to act in interests of appointing shareholder

The BVI is unique among offshore jurisdictions in that a company may choose to amend its constitutional documents to allow directors to act in the best interests of their appointing shareholder. This resolves certain legal issues, particularly in joint ventures, where a director may have a conflict between their duties to the company and their duties to their appointing shareholder.

Ease of migration

BVI companies may freely re-domicile out of the jurisdiction and foreign companies may generally re-domicile into the BVI. This contrasts with many jurisdictions where a company is locked into its domicile. This ease of migration allows for ease of corporate structuring, as needs change, when BVI companies are introduced into the structure.

Flexible choice of law

The BVI permits parties to freely choose the governing law in a variety of circumstances, which provides flexibility in contractual arrangements.

In terms of taking security, the BVI permits foreign law security to be taken over the shares of a BVI company. This allows parties to structure finance and security transactions using laws that they may be more comfortable with, or to enable parties to rely on enforcement remedies that may be available under their home jurisdiction.

In terms of joint ventures and co-investment, the BVI recognizes shareholder agreements under foreign law. This allows parties to structure transactions using their domestic law, which may be more aligned with other key transaction documents or the intent of the parties.

In terms of dispute resolution, the BVI allows BVI companies to choose arbitration as a remedy for disputes. BVI companies may also adopt arbitration provisions in their constitutional documents. This allows parties free choice in terms of the rules and site of any arbitration.

Legal protections and certainty

Common law legal system

The BVI has a common law legal system based on English law. The BVI courts are part of the Eastern Caribbean Supreme Court and the ultimate court of appeal is the Supreme Court of England and Wales. As such, the BVI's legal system is familiar and understandable to lawyers from other common law jurisdictions, and parties can transact with legal certainty.

The BVI is home to a well regarded commercial court, which regularly hears disputes between international litigants. The BVI has particular expertise in the area of shareholder disputes, with the Economist once noting that the BVI hears a significant number of international disputes involving joint ventures.

Light touch regulation

The BVI has a robust but fair regulatory framework which operates to international standards, while adopting a light touch approach to regulation. The BVI has created a number of simple and regulatory light products, such as approved funds, incubator funds and approved managers, to facilitate transactions without significant regulatory burden.

Summary

The BVI offers a wide array of corporate solutions with minimal red tape. As an international finance centre, BVI corporate law is designed to facilitate trade. BVI companies are geared towards facilitating seamless international corporate transactions, at low cost, with minimal prescription and maximum flexibility.

Our team has long experience of how BVI companies can be used in corporate transactions and the advantages this offers. Please get in touch with any of the contacts listed to discuss this in more detail.