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DISCLAIMER

The information provided below is intended to be only an aid to understanding the legislation reviewed in this section.  The contents do not in any way constitute legal advice to any person for payment or otherwise and Lennox Paton Corporate Services Limited and the Partners of the firm of Lennox Paton do not and will not in any way accept responsibility or liability for any loss or damage caused by or arising from reliance on the information contained herein.

Persons reading this publication are reminded that where a decision is to be made which depends for its correctness on the effect of the legislative regime discussed herein or on any other legislation or Common Law rules, professional advice should be sought from the firm of Lennox Paton or any other firm of qualified legal professionals.

FOREWORD

The following information is not intended to provide a technical legal analysis of the provisions of the Bahamas International Business Companies Act, 2000, the Bahamas International Business Companies (Amendment) Act, 2004 and the Bahamas International Business Companies (Amendment to Fee Schedule) Order, 2004 (together the "Bahamas IBC Act")

We have focused only on the main provisions of the Bahamas IBC Act and have intentionally omitted explanations of various sections of the legislation which we believe are not of primary concern to the financial services industry of The Bahamas. All references to ?$? are to Bahamian dollars. One Bahamian dollar equals one US dollar. The law is stated as at 1st March 2007.

OVERVIEW

The Bahamas International Business Companies Act, 2000, repealed the Bahamas International Business Companies Act, 1989 as amended.

PERMISSIBLE ACTIVITIES FOR BAHAMAS INTERNATIONAL BUSINESS COMPANIES

Bahamas International business companies (?Bahamas company? , "Bahamian Company" or ?Bahamas IBC?) are permitted to carry on any activity anywhere that is not prohibited by the Bahamas IBC Act or any other law in force in The Bahamas.

Bahamas IBCs have such powers as are permitted by law for the time being in force in The Bahamas, irrespective of corporate benefit, to perform all acts and engage in all activities necessary or conducive to the conduct, promotion or attainment of the object of the Bahamas IBC.

The Directors of a Bahamas company may exercise all the powers of the Bahamas IBC to borrow money and to mortgage or charge its undertaking and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party.

Any mortgage or charge of the undertaking and property of the Bahamas company shall be regarded as in the usual or regular course of the business carried out by the Bahamas IBC.

In addition to carrying on business outside The Bahamas, Bahamian IBCs may carry on business with persons deemed or designated ?residents? of The Bahamas pursuant to the Exchange Control Regulations, 1956, and own or have a leasehold interest in real property situate in The Bahamas; provided that, Bahamas IBCs wishing to carry on business with persons deemed or designated ?residents? of The Bahamas must obtain prior exchange control approval of the Central Bank of The Bahamas. 

APPLICATION FOR INCORPORATION OF A BAHAMAS IBC

An application must be submitted to the Registrar in order to incorporate a Bahamas IBC.  The application must be accompanied by the following documents at the time of registration:

a.      memorandum of association;
b.      articles of association;
c.      address of the Registered Office;
d.      name and address of the Registered Agent; and
e.      a written certification from either:
        (i)     a counsel and attorney engaged in the formation of the Bahamian company, or
        (ii)    the Registered Agent as named in the memorandum of association of the Bahamian company, certifying that the registration requirements have been met.

There is an incorporation fee of $330.00.  An annual registration fee is payable to the Registrar on 1 January of $350.00 for an IBC with an authorised capital of $50,000.00 or less and $1,000.00 where the authorised capital exceeds $50,000.00.  Where the Bahamas company is of unlimited liability or is limited by guarantee or includes no par value shares, the fee is $350.00.  The first annual registration fee is payable in the year immediately succeeding the year of incorporation.

SHARE CAPITAL OF A BAHAMAS COMPANY

Shares in a Bahamas IBC may be issued for money, services rendered, personal property (including other shares, debt obligations or other securities in the company), an estate in real property, a promissory note or other binding obligation to contribute money or property, or any combination thereof.

Shares in a Bahamas company may be issued for such amount as may be determined from time to time by the directors, and in the absence of fraud, the decision of the directors as to the value of the consideration received by the company in respect of the shares is conclusive, unless a question of law is involved.  Treasury shares and unissued shares may be disposed of by a Bahamas company on such terms and conditions as the directors may determine.

Subject to any limitations in its memorandum or articles of association or any other law for the time being in force in The Bahamas, a Bahamas IBC may issue:-

a.      registered shares but not shares issued to bearer;
b.      voting shares;
c.      non-voting shares;
d.      shares that may have more or less than one vote per share;
e.      shares that may be voted only on certain matters or only upon the occurrence of certain events;
f.      shares that may be voted only when held by persons who meet specified requirements;
g.      no par value shares;
h.      unnumbered shares;
i.      common shares, preferred shares, or redeemable shares; and
j.      shares that entitle participation only in certain assets.

A Bahamian company may by a resolution of directors amend its memorandum of association to increase or reduce its authorised capital and in connection therewith the company may in respect of any unissued shares increase or reduce the number of such shares, increase or reduce the par value of any of its shares or effect any combination of the foregoing.

A Bahamas IBC may amend the memorandum of association to:

a.      divide the shares, including issued shares, of a class into a larger number of shares of the same class; or
b.      combine the shares, including issued shares, of a class into a smaller number of shares of the same class, provided, however, that where shares are divided or combined under (a) or (b) above, the aggregate par value of the new shares must be equal to the aggregate par value of the original shares.

The capital of the Bahamas company may by a resolution of directors be increased by transferring an amount of the surplus of the company to capital.

The capital of the Bahamas company may by resolution of directors be reduced by:

a.      returning to members any amount received by the company upon the issuance of any of its shares, the amount being surplus to the company;
b.      cancelling any capital that is lost or not represented  by assets having a realisable value; or
c.      transferring capital to surplus for the purpose of purchasing, redeeming or otherwise acquiring shares that the directors have resolved to purchase, redeem or otherwise acquire.

However, no reduction of capital shall be effected that reduces the capital of the Bahamas company to  an amount that immediately after the reduction is less than the sum of :-

(i)     the aggregate par value of all outstanding shares with par value;
(ii)     and all shares with par value held by the company as treasury shares;
(iii)   and the aggregate of the amounts designated as capital of all outstanding shares without par value; and
(iv)    all shares without par value held by the company as treasury shares that are entitled to a preference, if any, in the assets of the company upon liquidation of the company.

Also no reduction of capital shall be effected unless the directors determine that immediately after the reduction the Bahamas company will be able to satisfy its liabilities as they become due in the ordinary course of its business and that the realisable assets of the company will not be less than its total liabilities, other than deferred taxes, as shown in the books of the company and its remaining issued and outstanding share capital, and, in the absence of fraud, the decision of the directors as to the realisable value of the assets of the company is conclusive, unless a question of law is involved.

PROHIBITION OF THE ISSUANCE OF SHARES TO BEARER

Bahamas IBCs are not permitted to issue shares to bearer (?bearer shares?).

All bearer shares previously issued under the provisions of the Bahamas International Business Companies Act of 1989 are considered null and void and without effect for all purposes of law.

Filing of Amendments to MemoraNdum and Articles of Association and Other Documents

Subject to any limitations in its memorandum and articles of association, a Bahamas IBC may amend its memorandum and articles of association by resolution of the members and where permitted by the memorandum or articles of association or the Bahamas IBC Act by a resolution of the directors.  Where a Bahamas IBC amends its memorandum or articles of association (including the change of capital), it is required to submit to the Registrar an authenticated copy of the resolution of the members or the directors amending the Bahamas company?s memorandum and articles of association within 28-days of such amendment.  The amendment to the memorandum or articles of association is not effective until registered by the Registrar.

A Bahamas company is also required to file notices of any changes to its register of officers and directors, the name and address of its registered agent and the address of its registered office.  See below.

Except as provided above, a Bahamian company is not subject to any annual filing requirements.

REGISTERED OFFICE/REGISTERED AGENT

An Bahamas company must at all times maintain a Registered Agent and Registered Office in The Bahamas.  The name and address of the Registered Agent and the address of the Registered Office must be submitted to the Registrar with the application for registration of the Bahamas IBC. 

The Registrar must be notified of any change in the address of the Registered Office within 14-days after such change has been made and any change in the name or address of the Registered Agent. 

Under the Bahamas IBC Act, only Bahamian licensed banks and trust companies and financial and corporate service providers licensed under the Bahamas Financial and Corporate Service Providers Act are permitted to act as Registered Agents of Bahamas IBCs. 

Resignation of Registered Agent

Where a Registered Agent wishes to resign and is unable to reach an agreement with the Bahamas company regarding the Registered Agent?s replacement the Registered Agent may resign provided the Registered Agent takes the following steps:-

a.      the Registered Agent shall give not less than 90 days written notice to any director or officer of the Bahamas company of which he is Registered Agent at the director?s or officer?s last known address, or if the Registered Agent is not aware of the identity of any director or officer then the person from whom the      Registered Agent last received instructions concerning the Bahamas IBC, specifying the wish of the Registered Agent to resign as Registered Agent;
b.      the Registered Agent shall, in writing, inform the Registrar that he has served the notice referred to in paragraph (a);
c.      if, at the time of the expiry of the notice, the Bahamas company has not notified the Registrar or the Registered Agent of any change in the name or address of its Registered Agent, the Registered Agent shall inform the Registrar in writing that the Bahamas company has not changed its Registered Agent and the Registrar shall publish a notice in the Gazette that the name of the Bahamas IBC will be struck off the Register of Companies (?Register?), unless the Bahamian company, within 30-days from the date of the publication of the notice in the Gazette, notifies the Registrar of the change in the name or address of its Registered Agent; and
d.      if a Bahamas company fails within 30-days from the date of the publication of the notice referred to in paragraph (c) to notify the Registrar of the change in the name or the address of its Registered Agent, the Registrar shall strike the name of the Bahamas IBC off the Register and shall publish in the Gazette a notice that the name of the Bahamian company has been struck off the Register.

If the Registrar has reasonable cause to suspect that a Registered Agent has died or has otherwise ceased to act or to qualify to act as a Registered Agent and the Bahamas company has not notified the Registrar of any change in the name or address of its registered agent, the Registrar shall serve on the company at its registered office a notice directing the Bahamian company to replace the registered agent.

If a Bahamas company fails within 30-days from the date of the notice to notify the Registrar of any change in the name or address of its Registered Agent, the Registrar shall strike the name of the Bahamas IBC off the Register and shall publish in the Gazette a notice that the name of the Bahamas company has been struck off the Register.

Maintenance of Share Register or Register of Members/Shareholders, Register of Directors and Officers

A Bahamas company is required to keep at its Registered Office:-

a.      one or more registers known as Share Registers containing the names and addresses of the persons who hold registered shares of the Bahamas company; the number of each class and series of registered shares held by each person; the date on which the name of each person was entered in the Share Register and the date on which any person ceased to be a member.  The Share Register is not        publicly filed with any government authority.
b.      a Register of Directors and Officers containing the names and addresses of the persons who are directors and officers of the Bahamian company; the date on which each person was appointed as a director or officer of the Bahamas company; and the date on which each person as a director or officer ceased to be a director or officer of the Bahamas IBC.  A current copy of the Register of Directors and Officers must be filed with the Registrar.  Any changes must be filed within one year of such changes.
c.      copies of its memorandum and articles of association.
d.      an imprint of its common seal.

Officers and Directors of Bahamas COMPANIES

Subject to any limitations in its memorandum or articles of association or in any unanimous shareholder agreement, the business and affairs of a Bahamas company shall be managed by at least one director who may be an individual or a company.  There are no Bahamian residency or share qualification requirements to be a director of an Bahamas IBC. 

There is no requirement to appoint any officers of an Bahamas IBC. The Register of Officers and Directors must be filed with the Registrar within 12-months of their appointment and the Registrar must be notified of any change in the directors or officers of the Bahamas company within 12-months after the change occurs. 

Indemnification of Directors, Officers and Liquidators

Subject to any limitations in a Bahamas IBC?s memorandum and articles of association or in any unanimous shareholder agreement, a Bahamas IBC may only indemnify a director or officer against all expenses, including legal fees, and against all judgments, fines, amounts paid in settlement and reasonably incurred in connection with legal and administrative proceedings where such director or officer acted honestly and in good faith with a view to the best interests of the Bahamian company. 

Notwithstanding the foregoing, a Bahamas IBC may purchase and maintain insurance in relation to any person who is or was a director or an officer against any liability asserted against the person and incurred by the person in that capacity, whether or not the Bahamas company has or would have had the power to indemnify the person against any of the liability. 

Meeting of Members/Shareholders

A Bahamas IBC is not required to have an annual general meeting of the members.

Meeting of Directors

Subject to any limitations in the Bahamas IBC?s memorandum or articles of association or in any unanimous shareholder agreement the directors may meet in the following manner:-

The directors may meet together inside or outside The Bahamas for the dispatch of business.  A director shall be deemed to be present at a meeting of directors if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other and recognise each other?s voice.

It is necessary to give a minimum of 2-days notice of a meeting of the directors to every director but such notice may be waived by any director.

A director may by a written instrument appoint an alternate director who need not be a director and the name of such alternate shall be disclosed and notified to the Registrar.  An alternate for a director shall be entitled to attend meetings in the absence of the director who appointed him and to vote or consent in place of the director.

The quorum for a meeting of directors is that fixed by the memorandum or articles of association.

The continuing directors may act notwithstanding any vacancies, but if and so long as the number of directors is reduced below the minimum number of directors the continuing directors or director may act for the purpose of filling up such vacancies or of summoning general meetings of the Bahamas company, but not for any other purpose. If there be no directors or director able or willing to act, then any member may summon a general meeting for the purpose of appointing directors.

A resolution in writing signed by all the directors is effective as a resolution passed at a meeting of the directors duly convened and held, and may consist of several documents in the like form, each signed by one or more of the directors.

Appointment and Removal of Directors

The first directors of the Bahamas Company must be appointed by the subscribers to the memorandum of association; thereafter, the directors are elected by the members for such term as the members determine and where permitted by the memorandum or articles of association by the current directors.

Each director holds office for the term, if any, fixed by resolution of members or until his earlier death, resignation or removal.

A director may resign his office by giving written notice of his resignation to the Bahamian company and the resignation shall have effect from the date the notice is received by the Bahamas company or from such later date as may be specified in the notice.

A vacancy in the directors may be filled by a resolution of members or by a resolution of a majority of the remaining directors.

Dissolution and Striking-off

Where the Registrar has reasonable cause to believe that a Bahamas company no longer satisfies the requirements prescribed for a Bahamas IBC the Registrar shall serve on the company an Order for Compliance.

If the Registrar does not receive a reply within 90-days immediately following the date of the service of the Order the Registrar shall strike the name of the Bahamas company off the Register, unless the Bahamian company or any other person satisfies the Registrar that the Bahamas company should not be struck off, and the Registrar shall publish notice of the striking off in the Gazette.

Where a Bahamas company has otherwise complied with the requirements of the Bahamas IBC Act the Registrar shall upon request by the company issue a Declaration of Compliance.

fees and penalties

If a Bahamas company fails to pay the prescribed registration fee to the Registrar by the 1st day of April in each year the fee increases by 10% of that amount.

If a Bahamas company fails to pay the amount due by 31st October then the registration fee increases by 50% of the prescribed fee.

If a Bahamas company fails to pay the registration fee by 31st December, the name of the Bahamas IBC will be struck off the Register from 1st January of the following year.

segragated account companies

A Bahamas IBC:-

a.      engaged in the business of investment funds, with the written consent of the Securities Commission or an investment fund administrator with an unrestricted investment fund administrator?s license, where applicable;
b.      engaged in the business of issuing securities, with the written consent of the Securities Commission;
c.      engaged in insurance business, with the written consent of the Registrar of Insurance;
d.      if it is a subsidiary of a Bank or Trust Company and not licensed by the Central Bank of The Bahamas, with the written consent of the Central Bank of The Bahamas; or
e.      engaged in any other business, with the written consent of its primary regulator who may be prescribed  by the Minister may be registered as a segregated accounts company.

A Bahamas company registered as a segregated accounts company will be able to set up accounts containing assets and liabilities that are legally segregated from the assets and liabilities of the Bahamas IBC?s ordinary account thus allowing the assets of one account to be protected from the liabilities of another account.  This ability to segregate accounts removes the need to use separate companies for each investment strategy whilst affording each segregated account the same limited liability that would be obtained if separate accounts companies were used. 

Creation of Mortgages and Charges of Shares

A mortgage of shares or a charge of shares of a Bahamas company incorporated under the Bahamas IBC Act must be in writing signed by, or with the authority of, the registered holder of the share to which the mortgage or charge relates.

A mortgage of shares or a charge of shares of a Bahamas IBC may be governed by foreign law.

While a mortgage of shares or a charge of shares of a Bahamas IBC is not required to be in any specific form, it must clearly indicate:-

a.      the intention to create a mortgage or charge; and
b.      the amount secured by the mortgage or charge or how that amount is to be calculated.

In the case of default by the mortgagor or chargor on the terms of the mortgage, the mortgagee or chargee is entitled to the following remedies:-

a.      subject to any limitations or provisions to the contrary in the instrument creating the mortgage or charge, the right to sell the shares; and
b.      the right to appoint a receiver who, subject to any limitations or provisions to the contrary in the instrument creating the mortgage or charge, may (i) vote the shares; (ii) receive dividends and other payments in respect of the shares, and (iii) exercise other rights and powers of the mortgagor or charger in respect of the shares, until such time as the mortgage or charge is discharged.

In the case of a mortgage of shares or a charge of shares, the Bahamas company may enter in the share register of the company:-   a.      a statement that the shares are mortgaged or charged;
b.      the name of the mortgagee or chargee; and
c.      the date on which the statement and name are entered in the share register.

Registration of Mortgages and Charges of A BAHAMAS Company

A Bahamas company may elect to maintain a register of mortgages or charges and a Bahamas IBC may also elect to submit for registration by the Registrar its register of mortgages or charges.

Once a Bahamas company elects to submit a register of mortgages or charges to the Registrar the list of mortgages or charges must be a complete list and include ALL mortgages or charges of the Bahamian company.

A Bahamas company that has elected to submit for registration a copy of its register of mortgages and charges shall, until it otherwise notifies the Registrar, submit for registration any changes in the register of mortgages or charges by substituting for registration a copy of the register containing the changes.

A Bahamas company that submits for registration a copy of its register of mortgages or charges with the Registrar may elect to cease the registration of changes in the register by informing the Registrar in writing.

If a Bahamian company elects to submit for registration its register, until such time as the company informs the Registrar that it elects to cease to register changes in its register, the Bahamas IBC is bound by the contents of the copy of its register submitted to the Registrar.

Registration of documents creating a mortgage or charge

An IBC may submit to the Registrar for registration:-

a.      any document or copy of a document creating a mortgage, charge or other encumbrance over some or all of its assets;
b.      any document or copy of a document amending any document referred to in paragraph (a); and
c.      any document releasing or discharging a mortgage, charge or other encumbrance over any or all its assets.

The Registrar must retain and register the document or a copy thereof.

Fiscal Exemptions

A Bahamas IBC or any member or shareholder is not subject to:-

a.      any business licence fee, income tax, corporation tax, capital gains tax or any other tax or income or distributions accruing to or derived from such company or in connection with any transaction to which that Bahamas company or shareholder, as the case may be, is a party;
b.      any estate, inheritance, succession or gift tax, rate, duty, levy or other charge payable in The Bahamas with respect to any shares, debt obligations or other securities of that company or shareholder;
c.      the payment of stamp duty on any transactions in respect of shares, debt obligations or the securities of a Bahamas company and any other transactions relating to the business of the Bahamas IBC; provided however, stamp duty is payable in relation to real property situated in The Bahamas which is owned by the Bahamas IBC, or which is owned by any company in which it holds shares or for which it holds a lease.

These exemptions do not apply to :-

(i)     a person who is a ?resident? of The Bahamas within the meaning of the Bahamas Exchange Control Regulations Act; or
(ii)    to a company incorporated or continued under the Bahamas IBC Act if a ?resident? of The Bahamas within the meaning of the Bahamas Exchange Control Regulations Act and the regulations made thereunder is the beneficial or legal owner of any of the common or preferred shares issued or to be issued by such Bahamas company or acquires a legal or beneficial interest in any debt or other securities issued or to be issued by such Bahamas IBC or is otherwise directly or indirectly entitled to receive any dividends or distributions from such a Bahamas company.

A Bahamas IBC is exempted from the Bahamas Exchange Control Regulations only if its operations are intended to be exclusively overseas.  A Bahamas IBC wishing to carry on business with persons resident in The Bahamas must first obtain exchange control approval from the Central Bank of The Bahamas with respect to its planned operations. 

Persons deemed ?resident? for exchange control purposes and who wish to acquire shares or an interest in a Bahamas IBC must obtain prior exchange control approval.  Maintaining business relations with advisers, bankers and the maintenance of an office in The Bahamas is not considered doing business in The Bahamas although certain activities carried on from within The Bahamas may require the Bahamas IBC to be licensed under Bahamian law in respect of such activity. 

The foregoing exemptions are granted for a period of 20-years from the date of incorporation of a Bahamas company or from the date of its continuation under the Bahamas IBC Act.

For more information please contact: adavies@lennoxpaton.com