Cozier & Associates
   P.O. Box 518
   Primrose Building
   Ramsbury Road
   Charlestown,
   Nevis, WI

   Tel 869-469-0488
   Or  869-469-1634
   Fax 869-469-0834
   info@cozierlaw.com




              Specializing in the Provision of Offshore Services

International Business Companies

Introduction to Companies

Companies, in one form or another, have existed for at least four centuries. During the 19th century many jurisdictions introduced statute law which has subsequently been revised to reflect changing conditions, philosophies, practices and procedures.

Corporate existence is evidenced in similar manner in different countries both in terms of public registration and formal documentation. Companies have been used in many ways and for diverse reasons by individuals, existing corporate entities, local authorities and government.
Public companies are those which are usually ultimately owned by a large number of shareholders and the shares of which are marketable with prices quoted on a stock exchange. Private companies are usually owned by one individual, a family or a small group of interested parties but can also be owned by a public company. This package is intended to explain the significance and operation of private companies wherever they may be incorporated.

Explanation

A Company (or corporation) is recognised in law as having its own distinct and separate legal existence, independent of that of the persons or other entities who own it (that is, the shareholders or members). The ability of a shareholder to limit personal liability by using a company has meant that such arrangements have become popular and widely accepted.

A Company has certain characteristics which may differentiate it from other legal entities or arrangements:-

• It has its own name in which it can acquire legal rights and incur obligations, sue and be sued.

• The name of the company is used when transactions are undertaken and the ownership of assets is registered, thus distancing such matters from the shareholders.

• It has perpetual succession which is unaffected by changes of the shareholders.

• The liabilities of the shareholders can be limited.

• The interests of the shareholders are evidenced by share certificates, the ownership of which can be simply transferred without affecting the assets of the company.

• The directors of the company are responsible for the on-going management and administration of the company but within stated objectives and in accordance with all applicable laws or regulations. The shareholders retain ultimate control by virtue of their ability to replace directors.

Types of Company

A Company may be private or public or formed by governmental decree or Royal Charter.

The shareholders’ liability can be limited to the amount of any unpaid calls on the shares issued to them or on their behalf (by far the most common structure and the basis of subsequent comments herein) or by guarantee in a specific amount. It is still possible to form companies with unlimited liability but these have always been extremely rare.

Low tax jurisdictions generally offer different company classifications for tax purposes, such as "resident" or "ordinary"; or "non-resident" or "exempt". The latter two classifications usually attracts higher government fees but gain tax free status.

Companies can be formed for specific purposes but it is more usual to allow a wide range of objectives and thus provide flexibility for changes of use of the company in the future. An increasing number of jurisdictions now permit companies to be formed for virtually any lawful activity or purpose but a company’s activities can still be limited if this is preferred.

The name of a company may indicate the nature of its business, either generally or specifically. Often the name has some special significance to the shareholders. There are some obvious cases where a key descriptive word is normally added, such as "Shipping", "Consultants" and the like. General descriptive words such as "Management", "Holdings", and "International" are also often used. Though not essential in some countries, it is usual to confirm the company’s existence by adding "Limited", "Incorporated", "B.V.", "S.A." or similar at the end of the name.

It is not unusual for a company to be managed and administered in one or more countries other than the country of incorporation. This may be necessary to assist the shareholder in connection with such consequences as potential governmental or other interference, taxation, geographical/time zone proximity, location of appropriate directors and officers, etc.

Documents

These vary with each jurisdiction and the following cannot therefore be an exhaustive list of all documents that a company may be concerned with during its existence.

The constitutional documents evidencing the formation and existence of the company may include:-

• Incorporation Certificate which confirms the name of the company and the date of incorporation.

• Memorandum of Association and Articles of Incorporation (which may include the Incorporation Certificate) which basically set out the corporate structure, the initial authorised share capital (effectively the maximum number of shares which can be issued to the shareholders) and the company’s proposed business activities. The individuals setting up the company or their nominees will subscribe to and be named in this document.

• Articles of Association or By-Laws which set out procedural requirements for the good administration of the company. In some jurisdictions a standard form (for example "Table A") can be used. This document will, amongst other things, provide internal rules for the issue of shares, the distribution of profits, the regulation of shareholders’ and directors’ meetings including voting rights, provisions relating to the directors and the eventual termination of the company’s existence.

• Formal certificates recording any changes in the other constitutional documents.
Companies are required to have a registered office address in the country of incorporation where it is usually necessary to keep certain statutory records including an original or copy of the constitutional documents and details of the directors, officers and shareholders of the company and possibly also any charges registered against the company’s assets. Generally the shareholders of the company are entitled to see these statutory records at any time.

It should be noted that there are usually mandatory requirements for copies of some or all of the statutory records to be filed with the appropriate government office in the country of incorporation, together with various other documents from time to time including notices of any changes to the statutory records, possibly on an arising basis or in an Annual Return. Penalties may arise if these requirements are not met. Some or all of the information submitted to the government office may be available for inspection by the general public. Confidentiality can still however be secured for the ultimate owners of companies by the use of nominees.

It remains necessary for some documents to be executed under the seal of a company although not all jurisdictions require a seal to be adopted. The requirements for sealing a document vary but could include powers of attorney granted by the company for specific purposes, documents evidencing the disposal of assets and certain major agreements and contracts or deeds.

It is necessary to document details of meetings of the shareholders and directors of the company in what are known as Minutes. There should be sufficient detail so that the Minutes are self-explanatory. As an alternative, it may be possible for Resolutions or Written Consents to be circulated for signature by all of those persons entitled to attend the meeting. In modern practice, meetings are often held on a conference telephone facility. The constitutional documents or the laws of the country of incorporation of the company will determine which of these options are available.

A form of proxy may be executed by a shareholder or director who is unable to attend a meeting so that they are still represented. A director may appoint an Alternate to attend meetings in his absence. If required the Alternate could also be empowered to deal with all or any other matters on behalf of the director. Appointments of proxy or alternate director should be noted in the minutes or resolutions and thus be acknowledged by the other persons concerned.

Notice of all meetings should be given and the period of notice may be dictated by law or the constitutional documents, particularly for shareholders’ meetings. The period of notice for meetings of the directors must be practical but can be very short. It may be possible to waive notice of a meeting with the agreement of all persons entitled to attend or their proxies or alternates.

The issuance of the shares of a company is controlled by the directors who will provide share certificates to evidence shareholdings registered in the books of the company. Where it is possible to have bearer shares, the certificates will declare that the holder at any time is the owner and such certificates obviously need to be kept secure at all times to avoid loss of ownership.

Bearer shares can be transferred by physical delivery and without reference to the directors. The transfer of shares registered in the name of a shareholder will be evidenced by a Stock Transfer Form or a similar document and must be submitted for approval by the directors. If, as is more often the case, nominee shareholders are acting for the ultimate owners, they will execute short declarations of trust or agreements confirming their nominee status and stating for whom they hold the shares. If the ultimate ownership of the shares is to change the nominees may remain in place and the formal transfer of shares in the records of the company will not be necessary.

Only a small number of shares need be issued with a basic value which is paid to the company by the persons acquiring them. If the shares are not fully paid at this time the shareholder has a continuing liability to the company for the amount outstanding and this would be called upon if the company became insolvent.

Shares can also be issued at a premium, whereby the cost of the shares exceeds their basic nominal value. As an alternative it is quite usual for a company, having issued shares, to receive a further substantial sum by way of shareholder loan. Another option may be for this amount to be regarded as additional paid-in capital or contributed surplus which can be regarded as "gifts" to the company, in effect increasing the value of the shares which have been issued.

During the existence of the company it may be necessary to obtain a Certificate of Good Standing from a governmental or other authority in the country of incorporation. A director or officer of the company may issue an Incumbency or similar Certificate to specifically confirm, for example, the company’s corporate details, the names of the directors and officers, resolutions passed by the directors or shareholders, other documents entered into by the company and like information.

Finally, the documents required in the liquidation or dissolution of companies will depend upon the process adopted. In the case of a voluntary liquidation the directors might submit a formal proposal for agreement by resolution of the shareholder. Involuntary liquidation may be enforced by resolution of the creditors of the company if it is insolvent or by a ruling of the Court in the country of incorporation in certain other circumstances.

In the course of the liquidation it may be necessary to advertise publicly to give notice to any creditors of the company. A liquidator, if appointed, would present a final statement of account to the shareholders showing how the assets and liabilities of the company had been dealt with. Ultimately a certificate in some prescribed form must be registered with the government authority so that the company’s name can be formally deleted from the official records.

Other Parties

A Company is formed by a requisite number of subscribers (also known as founders or promoters) who subscribe to the Memorandum of Association or similar document. The subscribers may be individuals or, in some cases, corporate entities. The ultimate beneficial owner of the company may not necessarily be one of the subscribers, who are usually located in the country of incorporation and thus available to carry out the necessary formalities.

The company is seen to be legally owned by the Shareholders (or members) but by using nominee shareholders or bearer shares, the ultimate owner’s identity can be kept confidential.
Shares are occasionally designated into separate classes to reflect their different status, such as redeemable preference, debenture, "A", non-voting shares and the like.

The on-going management and administration of the company is vested in the directors and officers, who have varying degrees of responsibility depending upon the laws and practices of the country of incorporation, the constitutional documents and the delegatory powers of the directors and officers themselves.

It is generally accepted that companies are primarily managed by the directors. They may appoint some of their number to have specific duties, for example as chairman, managing director or finance director. It can be very important to select carefully where the directors may be located or hold meetings as this could determine the place of residence of the company for tax or other purposes.

The officers of the Company are usually appointed by the directors. There are various titles, including president, vice president, treasurer and secretary. Not all of these officials are required in every jurisdiction. This even applies to the secretary, a role which has attracted little attention in the company laws of many jurisdictions until quite recently. Generally, however, the secretary is regarded as the principal administrator of the company, maintaining the constitutional documents and the statutory records and ensuring that all legal and similar requirements are met.

Shareholders and directors can appoint proxies and directors may also be able to appoint alternates who can represent or act for them. It is normal for these appointments to be made subject to the approval of the other shareholders or directors. The directors might also specifically appoint individuals or a committee authorised to use the seal of the company.

If the directors and officers are not located in the country of incorporation it is usual for a Resident Agent in that country to be appointed to take care of statutory and related matters. There will also be a government official or department in each jurisdiction to collate records of all companies incorporated there. Such descriptive titles as Registrar of Companies and Public Registry Office are not used in every jurisdiction but other titles undertaking similar functions are usually easy to identify.

There is a great deal of flexibility with regard to the appointment of other officials by the directors, including authorised signatories over bank or other accounts, general managers, managers for specific functions such as investments, property and technical matters, advisers, consultants, agents, representatives and proxies. A company, through its directors, may grant powers of attorney to other individuals or corporate entities and thus delegate some specific or, more exceptionally, general powers; and may appoint bankers, accountants, auditors, legal advisers, custodians or trustees as may be necessary or desirable.

When the company is no longer required a Liquidator may be appointed to attend to all matters and to account finally to the shareholders. This appointment is especially preferred if the company has been involved in commercial business activities to ensure no residual assets or liabilities remain.
Choice of Governing Law

A considerable number of countries now offer tax and/or other benefits to non-residents wishing to form Companies there. This has underpinned the emergence and development of several offshore finance centres able to provide the full range of corporate services. Each country would argue its own merits and it is therefore impractical to describe their contrasting advantages and disadvantages here.
The principal factors to consider will include:-

• The financial aspects - costs and potential savings, whether governmental or otherwise, real or intangible.

• The reputation and stability of the country and its government.

• The convenience and certainty of local laws, regulations and requirements, including the ability to issue bearer or other classes of shares as desired and to grant or receive outright gifts.

• The degrees of confidentiality available and disclosure required.

• The geographical location and time-zone accessibility.

• The access to and quality of professional expertise, modern communications systems, etc.

• The availability of Companies which have already been formed or which can be formed expeditiously.

• The possibility whereby a company formed in one country can acquire a completely new domicile in another country and be fully and effectively re-registered there.

Although companies are often required immediately, due consideration should always first be given towards ensuring the initial and on-going objectives can and will be met. The careful choice of governing law is therefore of paramount importance.

Administration

The information required properly to decide which governing law to use should produce the details actually needed to commence the formation procedures.

The choice of a satisfactory name may be onerous in a country where many thousands of names are already in use. Descriptive words such as "Bank", "International" and "Royal" may not be permitted if they suggest a connection which cannot be substantiated. If permitted, a higher level of authorised share capital, and thus registration cost, may be called for in recognition of the special status. It is practical to propose two or three names; and approved names can usually be reserved for a limited period of time. Similar principles apply if the name of an existing company is to be changed.

Standard forms of the constitutional documents are in common use but must still be perused and amended as necessary to meet any special requirements. These documents are then lodged in the specific manner prescribed by the regulations of each country so that the company can be formally registered. It should not undertake business until registration has been completed which can take between a few hours and several weeks depending on the country concerned.

In a few countries it is necessary also to disclose the names and addresses of the individuals who are the ultimate beneficial owners unless an owner is a publicly quoted company. This information would be maintained by the governmental authority on a confidential basis and be unavailable for inspection by any enquiring person or other authority.

Further statutory formalities may need to be dealt with; for example, to determine the company’s residence or tax status. The statutory records must be set up and any other requirements met. The directors should be appointed and the company will then be ready for use.

During the existence of each company several similar administrative functions will be undertaken, most of which relate to the documents and the relationships with other parties already mentioned. Inevitably the on-going administration will then differ reflecting the specific business activities of each company.
The directors are primarily responsible for the administration of the company and will obviously need to consult one another to make decisions on a regular basis. They are also responsible for the appointment and removal of officers, the approval and submission of financial statements to the shareholders and the use of the company seal. The directors can delegate some of their powers and responsibilities as they deem appropriate.

The administration of a company must accord with its constitutional documents, the laws of the country in which it is incorporated and the applicable laws in any country in which it may be registered for any purpose or undertake any business activities. Whilst many of these regulations may be similar, care is needed to identify and have regard to specific and differing details. Directors in particular should ensure that their actions are always clearly authorised and properly undertaken.

As a matter of good practice, if not always law, adequate accounting records should be maintained. This will enable the directors to remain aware of the company’s financial position and avoid such risks as trading whilst the company is insolvent.

The practice of holding Annual General Meetings of the shareholders, whilst desirable, is no longer a statutory requirement in some jurisdictions. When such a meeting is held the usual business is to approve financial statements, ratify the acts of the directors and officers and elect directors and auditors for the forthcoming year. Extraordinary general meetings are usually required if the constitutional documents are to be changed; if called for any reason by the necessary number of shareholders as prescribed by law or in the constitutional documents; and on other relatively rare occasions.

On an exceptional basis the existence of a company may be terminated on a pre-determined date. More usually the termination procedures will commence when the company is no longer required or if the liquidation has been enforced by, for example, the creditors.

As an alternative to the formal and more usual liquidation processes it may be possible to allow a company to be struck off for non-payment of statutory fees or some similar statutory lapse. Whilst this may avoid the payment of further expenses it is not recommended as the directors and/or shareholders could be left with some residual liabilities.

In most countries specific laws have evolved to ensure that the interests of all concerned are properly protected when a company is terminated.

Purposes

Since the concept of limited liability was established, companies have been used for an ever increasing and widening variety of purposes. The following notes cannot therefore be comprehensive but should serve to indicate the principal purposes for which companies are presently being formed in offshore finance centres and to a lesser extent elsewhere.

• Tax: by transferring assets into a company it may be possible to reduce or eliminate taxes assessed on income and profits, capital gains, gifts, wealth and on the death of individuals. This could particularly apply if the ultimate beneficial owners wish to invest in a country in which they are not domiciled or do not have citizenship.

• Continuity: the administrative succession of a company can be secured such that the death of shareholders, directors or officers will have no adverse impact.

• Publicity: assets held in an individual’s name are often on public record whereas the ultimate beneficial ownership of a private company can remain confidential.

• Familiarity: a company with limited liability for its shareholders is a recognised and accepted vehicle for all manner of private and commercial business activities compared, for example, to trusts, partnerships and even individual’s personal names.

• Ownership: differing beneficial interests in a specific asset can be clearly established if the asset is held in a company, the issued shares of which could reflect the appropriate proportions of ownership. Further, the identity of assets in the hands of the beneficial owner (for example, real property or interest bearing deposits) changes (into shares) when transferred into the name of a company.

• Convenience: companies can hold a wide range of traditional and other investments (such as yachts, private aeroplanes, dwellings, fine art, antiques, bloodstock and the like) as well as commercial interests (including the ownership of commercial vessels, aeroplanes, real property; the undertaking of trading activities; the holding of patents, copyrights and other intellectual property, and technical expertise; and the exploitation of artistic and sporting skills). Many companies are formed for specific functions such as captive insurance, international joint venture projects and offshore investment funds.

• Centralisation: a wide range of activities can be brought together in one company or a group of companies for managerial, administrative and/or accounting convenience, thus simplifying inter-company transactions (for example, for self-financing or to maximise financial opportunities) and to take greater advantage of one or more of the other purposes mentioned above.

• Trusts: the combination of a trust and company is commonly used to enhance some of these purposes and introduce other advantageous possibilities.
The purposes and benefits of companies are not restricted to those discussed above. Companies can and have been used to achieve many other, often unique, objectives.
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Cozier & Associates offers formation and administration services and can attend to all statutory and accounting requirements.

The services provided includes provision of directors and officers and other in house companies may provide any nominee facilities which may be required. The addresses of Cozier & Associates’ offices may be used as the registered or administrative office addresses of client companies under management.

The Fees & Expenses and Terms & Conditions for the provision of these services are published in a separate leaflet. Special fees will be quoted on request (but will usually be on a graded time/cost basis) together with any additional terms or conditions which may be applicable. Cozier & Associates has developed administrative policies designed to ensure the good standing of companies and to protect the interests of clients.