Isle of Man: Quasi-Trusts

Last Updated: 26 July 2000

Guarantee And "Hybrid" Companies In The Isle Of Man

Pauline Doyle, Partner, Ernst & Young Isle of Man

1. Introduction

The forms of (a) a company limited by guarantee and (b) a company limited by guarantee AND having a share capital were first introduced in the Isle of Man statutes in 1865. A vehicle was sought which would give limited liability to institutions and could operate without a working capital. External guarantors ensured that the company would maintain solvency, and they would have direct involvement in the day-to-day affairs of the company, without contributing any share capital.

A variation of this structure arose where some companies required a certain level of working capital but also need the "external" guarantee of solvency. This company is now known as a hybrid company.

The use of the guarantee companies and of guarantee companies having a share capital was usually, in the past, restricted to clubs and associations where membership, not shareholdings, was needed, and the objectives of the club were simple. In terms of corporate and tax planning, both the guarantee and hybrid companies have been recently revisited as offering interesting potential.

Isle of Man legislation permits the formation of both a guarantee company and a hybrid company. The legislation of other offshore jurisdictions (like Jersey and Guernsey) does not permit formation of these structures.

2. Nature of a member’s rights

Guarantee member enter into "contractual" arrangements, giving them rights and obligations. These obligations are personal to the guarantee member, are not transferable and cease on death. To become a guarantee member, an individual must make application to the board of directors of the company. Guarantee members must be treated equally by the company. They cannot be divided into classes, as would be the case in a share capital company.

This inflexibility does not apply in the case of the guarantee company having a share capital, as rights can vary according to the be class of shareholders. This is particularly useful in determining to which class ultimate rights on a liquidation will attach.

3. Features of Guarantee and Hybrid Companies

The key features and differences of a pure guarantee company and a hybrid company are as follows:

  • The Pure Guarantee Company
    • There are only guarantee members, there are no shareholders.
    • There is no share capital.
    • The members guarantee to contribute a small sum for example £1, 1US$.

  • The Hybrid Guarantee Company

There are 2 "sorts" of "participants":

    • A class of shareholder (or various classes), who are entitled to capital.
    • Members, who are entitled to dividends. In a pure guarantee company, members undertake to contribute small amounts in event of insolvency or/and liquidation. Members receive membership, not shares, and this membership cannot be transferred. Membership ceases only on death or resignation.

In the hybrid company, guarantee members are entitled to income rights and shareholders are entitled to capital rights. It is possible to structure a hybrid company so that it has the characteristics of a partnership or a trust.

Other important features of both Isle of Man Guarantee and Hybrid Companies are:

  • The company must be managed and controlled in the Isle of Man by a majority of Manx resident directors.
  • Regular meetings must be held in the Isle of Man and all key decisions taken in the Isle of Man. "Brass plate" and "rubber-stamping" are unacceptable.
  • The companies are tax resident in the Isle of Man.
  • Provided the company does not carry out business in the Isle of Man and is beneficially owned by non-residents of the Isle of Man, there is no taxation in the Isle of Man.

4. The hybrid company as a quasi-trust

The use of an offshore trust to protect assets is widely known. Currently in most civil law jurisdictions there is uncertainty as to the taxation treatment of trusts, and this subject is under review. Prospective settlors domiciled in a civil law jurisdiction (irrespective of their nationality) cannot, then, create trusts with tax efficiency or certainty. Tax authorities may exercise a "look through" power so that the disposition is seen as a transfer to an individual, exposing either the settlor or recipient to transfer or gift tax. In addition, the transfer itself may be seen as void in the settlor’s own domiciliary jurisdiction domicile, and by the common law jurisdiction in which the settlor or beneficiaries seek to enforce it.

A civil code country may recognise trusts created abroad, but not if created by those domiciled within its own boundaries. A common law country will recognise trusts, but not if created by someone the law of whose domicile does not recognise such creation. The hybrid company is, however, structured as a company and it is obviously not a trust. It, therefore, offers an opportunity to place assets in a vehicle which operates as a company, can trade as a company and can have protection of its assets.

5. Structural comparison

In the classical trust structure, a settlor instructs his trustees to hold assets upon trust, and to protect the assets for the benefit of the beneficiaries. A letter of wishes may offer guidance to the trustees and a protector may be introduced.

In the hybrid company structure, the instructions, closely resembling a letter of wishes, which are given to incorporate the company may come from anyone.

The directors and shareholders manage and control the company between them, and a "golden" shareholder, who functions as a protector, can legitimately confine the directors’ discretion. Only guarantee members have the right to receive distributions. The guarantee members may call upon the directors to wind up the company and distribute its assets (if any), subject always to the obligation of the guarantee members to contribute on an insolvent liquidation.

On the death of a guarantee member, his membership dies. It cannot be transferred in life or transmitted on death, and it is, then, of no value to the guarantee members’ heirs. New guarantee members can be introduced with each generation. Obviously this facilitates selective election of members - nothing is automatic.

The identity of the shareholders and guarantee members of a hybrid remain confidential, as this information is not included in the company’s annual return, to the Isle of Man Companies Registrar. The object of the hybrid (except as a charitable quasi-trust) is similarly undisclosed, in that only the Memorandum and Articles of Association are open.

6. Summary

It is the distinction between a shareholding member and a guarantee member which enables the structure to function as a trust:

  • A shareholder has a right to income and to assets in a winding up in proportion to his capital contribution.
  • A guarantee member has an obligation to contribute an amount in the event of a winding up, but is not required to contribute capital, and may or may not have liquidation rights under the Articles.

This pattern is reversed in the case of a hybrid structured as a trust. The Articles of Association place management and control of the company in the hands of its directors and shareholding members, but the shareholders are barred from receiving any distribution. The guarantee members, with low obligations to contribute to insolvency, are eligible to receive dividends and interest-free or interest-bearing loans, and the members have very restricted voting rights. In summary, the guarantee members are the passive "beneficiaries" of a hybrid corporation, which is similar to a trust.

The content of this article is intended only to provide general guidelines related to this particular matter. For your specific circumstances, full specialist advice is recommended.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions