The statutes governing registered companies in Guernsey are the Companies (Guernsey) Laws 1994 and 1996. The statutory basis for registered companies in Guernsey is an entirely English concept and the general features of Guernsey companies have followed English company law.
The Concept Of A Registered Company
A registered company, that is, a company incorporated by registration under the Companies Law, is deemed by the law to be a separate legal person just as much as a human being. The company, as a legal person, can own land and other assets, enter into contracts, sue and be sued, have a bank account in its own name, owe money to others and employ people to work for it. The company's money and property belong to the company and not to the shareholders. The company's debts are the debts of the company and not of the shareholders.
Procedure To Register A New Company
In Guernsey a new company is registered by Act of the Royal Court upon the application of the promoters to register a document known as the Memorandum of Association. When permission has been granted the company exists as a separate legal person and the Memorandum is registered at the Guernsey Company Registry, known as the Greffe, in a separate company file, which is open to the public. This document sets out the purposes or objects of the company together with its capital structure and it governs its contractual relationship with third parties. Usually another document, called the Articles of Association, is registered at the same time. This latter document governs the relationship of the members of the Company amongst themselves and sets out the way in which the company is to be administered. Before a company can be registered in Guernsey permission has to be obtained from the Law Officers of the Crown and the Guernsey Financial Services Commission, who vet the application for compliance with local law and acceptability to the authorities.
Each Guernsey company has to have a registered office in the island of Guernsey. The location of the registered office is kept in a register at the Greffe.
Effect Of Registration Of A Company
From the date of incorporation the company is a separate body capable of acting separately from its members. Although it is sometimes thought that the liability of a registered company is limited this is not in fact the case. Although the company has the name "Limited" in its name it is the liability of the members which is limited, not that of the company itself. This principle of the independent corporate existence of a registered company is of the greatest importance in company law. Thus, a registered company is quite different from a trust or partnership, neither of which are registered or have separate legal existence from their trustees or partners.
The Management Of Registered Companies
Although registered companies have a separate legal existence of their own they can, of course, only act through human beings. The legal framework provided by statute for the management of companies is flexible. Within this framework companies are organised in a variety of ways. The basic features of a company's administrative structure are as follows:
The Board Of Directors
Just as in the case of many unincorporated clubs or associations, registered companies are administered primarily by an Executive Committee, in the case of a registered company usually called a Board of Directors. The Board of Directors consists of persons who have been elected to that position by the shareholders in general meeting. They are appointed either for a fixed period or for an indeterminate period.
Other Executive Functions
Besides the Directors there will often be managers, accountants and the whole range of executive and administrative officers and employees found in any other organisation. In addition there may be a Managing Director who will be an employee of the company, responsible for the overall business of the company, who also has a seat on the Board of Directors.
The Ownership Of A Registered Company
The owners of a registered company are normally known as shareholders or members. There can be a whole range of shareholding ranging from ordinary shares, preference shares, redeemable preference shares, voting shares, non-voting shares, deferred shares or any permutation of them. Certain types of shares are sometimes called "stock".
Except in certain narrowly defined cases every registered company must have the word "Limited" in its name. The names of companies are controlled by the Guernsey authorities to ensure that the name chosen is not misleading, pretentious or inappropriate to the activities of the company. Companies can change their names upon receiving permission from the Royal Court.
Most Guernsey companies are registered and start business without issuing a prospectus. However, if shares are to be issued to the public the authorities will require a detailed prospectus to be issued setting out all salient points which a prudent investor would wish to know before committing himself to investment. Prospectuses are chiefly seen in the case of collective investment schemes in which the public are invited to invest. The form and complexity of the prospectus will depend on the policy of the promoters and the requirements of the authorities.
Each January every Guernsey company must send to H.M. Greffier an annual list of the shareholders, directors and capital of the company. This document is normally known as the Annual Return.
A director is really a quasi-trustee who looks after the interests of: the shareholders collectively by promoting the best interests of the company, He must at all times act in good faith and not seek to promote his own personal interests to the detriment of the company. A director is normally protected in his dealings with third parties as long as he makes it clear that he is dealing with the third party on behalf of the company itself. Normally, only if he acts fraudulently or misrepresents the Company's financial position to the shareholders in general meeting, could the director incur personal liability, although the legal position of directors of trust companies is more onerous since the enactment of the Trusts (Guernsey) Law, 1989.
The Company Secretary
Each company must have a secretary, who must be either an individual or a registered company. The Company Secretary is normally appointed by the Board of Directors and is responsible for various duties such as keeping minutes of the meetings of the directors, ensuring the safe custody of the company seal, filing allotments of shares at the Greffe, etc.
Each company must keep corporate accounts. The legislation does not specify in any great detail the manner in which such accounts have to be kept. These will vary according to the business and size of the company. Normally the company's accounts are appropriate to the business of the company as suggested by the company's accountants and auditors. Guernsey companies normally follow the accounting and auditing standards of the professional accountancy bodies in the United Kingdom. There is no requirement, or indeed provision, in the Guernsey Company Laws for the filing of company accounts on the company register at the Greffe. The only accounts which need to be filed in Guernsey are those filed with the Administrator of Income Tax. This is not required in the case of an "exempt company" or in the case of companies which are eligible for exemption from audit. Where the auditing of accounts is mandatory, each year the auditors of the Company must certify to the shareholders of the company that the accounts of the company exhibit a true and correct view of the state of the company's affairs as shown by the books of the company.
Tax Status Of Guernsey Companies
The liability to pay income tax in Guernsey will depend on the following circumstances:
- Where a company carries on business in Guernsey or where its beneficial owners are resident in Guernsey for tax purposes the company will be regarded as resident in Guernsey for income tax purposes and will be liable to pay tax at the rate of 20% in the pound on its net profits. However, certain activities such as international sales, corporate finance etc. may justify the very attractive "International Company Status".
- When a company does not carry on any business in Guernsey and where its beneficial owners are not resident in the Island for tax purposes (even if the company is administered in the Island) the company will be either an "exempt company" or an "international company". An exempt company is not liable to income tax but instead will have to pay an exempt company fee of £500 per annum. Such a company will, of course, still have to pay income tax on Guernsey source income (apart from interest on bank deposits which is paid gross). International companies pay income tax at such rates as may be agreed with the Income Tax Authority prior to incorporation (a brochure prepared by the Guernsey Financial Services Committee giving further details on International Companies is available on request).
The Advantages Of Administering Companies In Guernsey
Many thousands of companies are administered in Guernsey by legal and accountancy firms, banks and trust companies. The reasons for clients forming and administering companies in Guernsey are most varied. Normally the following advantages are quoted by clients as the reasons why they have come to Guernsey:
- Good professional infrastructure in the Island (lawyers, accountants, bankers);
- Ease of communication and telecommunication;
- Use of the English language;
- Efficient government departments;
- A government conducive to business enterprise;
- Good corporate vehicles (companies and trusts);
- Freedom from exchange controls;
- The ability to hold bank accounts in any hard currency;
- Favourable fiscal regime;
- Long history of political stability;
- Long connection with British Crown;
- Well developed political institutions;
- Good government supervision;
- Convenient location for European operations;
Use Of Guernsey Companies
Clients find many uses for companies in Guernsey, including the following
- Holding yachts registered under the British flag but moored in other parts of the world.
- Holding immovables on the continent of Europe or elsewhere.
- Holding intellectual property with royalty payments being received in Guernsey.
- Trading internationally.
- Holding assets for family and personal reasons.
- Captive insurance.
- Collective investment schemes.
- Venture capital schemes.
- Asset protection.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.