Law and Practice

1. Introductory

1.1 Forms of Corporate/Business Organisations

Corporate vehicles in Gibraltar may take various forms. These include:

  • foundations;
  • limited partnerships;
  • protected cell limited partnerships;
  • limited liability partnerships;
  • companies limited by guarantee (with or without a share capital);
  • companies limited by shares;
  • protected cell companies; and
  • unlimited companies.

As each form of corporate vehicle contains its own unique set of characteristics, the most suitable vehicle for a particular use-case will depend on various factors, such as the nature of the underlying business activity or reasons for the establishment of the vehicle (eg, asset protection or succession planning).

Companies limited by shares are by far the most common form of corporate vehicle in use in Gibraltar. These may be set up as a private company (in which case the company's shares or debentures are not allowed to be offered to the general public) or as a public company (in which case the company's shares or debentures are allowed to be offered to the general public).

1.2 Sources of Corporate Governance Requirements

The principal sources of corporate governance requirements for companies in Gibraltar are the following.

Companies Act 2014

The Companies Act 2014 is the principal statutory instrument governing the formation, operation and dissolution (excluding companies in compulsory liquidation) of companies in Gibraltar.

Financial Services Act 2019

The Financial Services Act 2019 (FSA) and its accompanying sector-specific Regulations establish Gibraltar's regime for financial services and securities law. The FSA applies to any person who carries on a regulated activity in or from within Gibraltar. The FSA also establishes the restrictions that apply to an offering of securities to the public made in or from Gibraltar.

The FSA and its accompanying Regulations came into force on 15 January 2020, following the largest-ever reform programme of Gibraltar's financial services legislation, and provide a modern legislative framework for all financial and professional service sectors in Gibraltar.

The reform consolidated approximately 90 pieces of legislation within an enhanced, more accessible and modernised structure, which introduces cross-sectoral terminology and powers for the Gibraltar Financial Services Commission (GFSC), aimed at ensuring consistency across all regulated activities.

The Regulations complement the new structure, concepts and terminology of the FSA by consolidating prudential business conduct and other requirements applicable to each financial service industry within respective sets of sector-specific Regulations.

Common Law

Common law relates to the body of uncodified laws based on legal precedents established by the courts.

The common law and the rules of equity from time to time in force in England and Wales apply to Gibraltar, subject to any modifications or exclusions made by Her Majesty in Council, an Act of the UK Parliament or an Act passed by the Gibraltar Parliament pursuant to the Gibraltar English Law (Application) Act 1962.

While Gibraltar's legal system is based on that of England and Wales, Gibraltar's statute law has developed differently in so far as the Gibraltar Parliament has enacted and amended laws to suit Gibraltar's own particular requirements. Accordingly, it is important to note that English common law is not binding in Gibraltar but can be a highly persuasive authority in Gibraltar legal proceedings where the statutory background is sufficiently similar.

The fiduciary duties that directors owe to a company, for example, are products of common law and are not codified in statute.

Insolvency Act 2011

The Insolvency Act 2011 contains provisions relating to the insolvency and winding up of companies in Gibraltar.

Corporate Governance Code for Collective Investment Schemes

In 2013, the Gibraltar Funds and Investments Association (GFIA) introduced a Code of Conduct for Collective Investment Schemes (the "Code"), which was meant to address best practices in the context of experienced investor funds and private funds.

The Code captured existing accepted principles of good practice and guidance, and further developed these principles by capturing Gibraltar-specific issues such as the governance of self-managed funds and oversight of experienced investor funds structured as protected cell companies.

As well as dealing specifically with the role and responsibilities of a fund director, the Code seeks to set out directors' duties during each stage of the life cycle of a typical fund, and defines what is expected in respect of the effective oversight and supervision of service providers to the fund. It also covers specific elements of the composition of a fund's board and its collective skill set.

In 2018, through a specific addendum to the Code, Gibraltar became the first jurisdiction in the world to issue specific standards for the structure of crypto funds, including corporate governance, risk management, valuation, custody, safekeeping and security, and a host of other important touchpoints (the Corporate Governance Code for Gibraltar Crypto Funds). Following the success of the first edition of the Corporate Governance Code for Gibraltar Crypto Funds, an updated second edition was published in March 2022.

It is important to note, however, that the Code is not legally binding and operates under the principle of "comply or explain" – which is to say, the Code is not there to say how something must be done. The Code is there to encourage licensees to consider certain issues and, where the licensee feels that those issues are better dealt with in a different fashion, to document their thought process.

1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares

In addition to the requirements discussed in 1.2 Sources of Corporate Governance Requirements, companies with shares that are publicly traded must also comply with the EU Market Abuse Regulation, which continues to apply in Gibraltar, subject to certain amendments introduced under the Financial Services (Market Abuse) (Amendment) (EU Exit) Regulations 2020 in order to address deficiencies and to ensure that the EU Market Abuse Regulation is able to operate effectively under Gibraltar law following Gibraltar's withdrawal from the EU.

2. Corporate Governance Context

2.1 Hot Topics in Corporate Governance

By virtue of the Sanctions Act 2019 (the "Act"), international sanctions have effect in Gibraltar. Such measures include the application of:

  • EU sanctions;
  • UN Security Council sanctions;
  • any restrictive measures imposed by means of a designation within the meaning of the UK Terrorist Asset-Freezing etc. Act 2010;
  • any restrictive measures imposed by an organisation that is notified by the government by notice published in the Gazette; and
  • any restrictive measures imposed by the UK under the Sanctions and Anti-Money Laundering Act 2018.

The Act therefore provides for the automatic recognition and application of any restrictive measures imposed by the UN, the UK and the EU. The implementation of such measures has had quite an impact on corporate governance, particularly since the recent events in Ukraine, and particularly for the legal and corporate service providers industry. When dealing with a Russian individual or corporation, or any person or entity connected with Russia, for example, service providers in Gibraltar have to navigate the different sanctions regimes imposed by the UN, the UK and the EU.

Additionally, the rise of environmental, social and governance (ESG) initiatives has seen an increasing number of firms taking measures to reduce their carbon footprint and in turn increase their economic sustainability in order to remain attractive in the legal market. ESG standards are a criteria used to ascertain the sustainability of the non-financial impact of investments. Firms have dedicated themselves to organising and setting up ESG teams in order to assist with the navigation of ESG disclosure requirements, which we are moving towards. See 2.2 Environmental, Social and Governance (ESG) Considerations.

2.2 Environmental, Social and Governance (ESG) Considerations

Under the Companies Act, a large company (as defined within the Companies Act) which is a public-interest entity is required to issue a non-financial information statement within the directors' report. The information required by the statement must include information relating to:

  • environmental matters (including the impact of the company's business on the environment);
  • the company's employees;
  • social matters;
  • respect for human rights; and
  • anti-corruption and anti-bribery.

The statement must also provide brief details of the company's business model.

3. Management of the Company

3.1 Bodies or Functions Involved in Governance and Management

The principal bodies involved in the governance and management of a Gibraltar company can be broken down into shareholders, the board of directors and the secretary.


A company must have at least one registered shareholder, who may be either a natural person or a body corporate. A person, having agreed to become a shareholder, becomes a shareholder of a company upon their name being entered in the company's register of shareholders.

There is no limit on the maximum number of shareholders that a private company can have. The Companies Act had previously restricted private companies to a maximum of 50 shareholders. However, this restriction has since been removed, and private companies can therefore consist of an unlimited number of shareholders without the need to be registered as a public company.

The company must record the details of the new shareholders in the register of shareholders.

Board of Directors

Directors are appointed to direct, control and supervise the activities and affairs of a company. Directors are a connecting line between the company and third parties. By definition, a director "includes any person occupying the position of director by whatever name called". This definition is wide in order to include those who are effectively dealing with the affairs of the company, but who do not bear the title "director". It also ensures that there is no legal distinction between executive directors and non-executive directors, although differences will usually be found in the roles they perform.

The conducting of board meetings is generally not covered by the Companies Act. The main statutory provisions affecting board meetings concern minutes of board meetings being kept and disclosure by directors of interests in contracts. The rules for conducting board meetings largely depend on the company's articles of association, thus giving a company great flexibility. For example, Gibraltar law does not prevent board meetings from being held anywhere in the world nor does it prevent directors from participating in board meetings through electronic means. However, a company must seek tax advice when doing so in order to mitigate any potential tax consequences.


Every company incorporated in Gibraltar must appoint a secretary. Both natural persons and corporate bodies are eligible to be appointed as a secretary. If a corporate body is undertaking this function, it must ensure that it is licensed by the GFSC in order to undertake such services. In the case of a public company, the secretary must have specific knowledge and experience to discharge the functions of company secretary.

3.2 Decisions Made by Particular Bodies

The board of directors of a company is appointed to direct, control and supervise the activities and affairs of a company. Accordingly, the articles of association ordinarily empower the directors to exercise all decision-making powers of the company which are not required, by the Companies Act or by the articles of association, to be exercised by the shareholders.

The Companies Act prescribes a number of matters that are reserved to the shareholders, and that can only be passed by a shareholders' resolution. These include:

  • a special resolution (as further discussed in 5.3 Shareholder Meetings) being required to re-register a company as a public company;
  • a special resolution being required to approve the terms of a proposed contract to purchase the company's own shares or to vary, revoke or renew this authority;
  • a special resolution being required to make a payment out of capital for the redemption or purchase of the company's shares;
  • at least an ordinary resolution (as further discussed in 5.3 Shareholder Meetings) being required to issue, at a discount, shares in the company of a class already issued;
  • a special resolution being required to authorise a reduction of the company's share capital; and
  • a special resolution being required to dispense with the requirement to hold annual general meetings (as further discussed in 5.3 Shareholder Meetings).

While the statutory requirements cannot be overridden by a company's articles of association, in some instances the Companies Act allows the company to delegate some of these matters to the board of directors under its articles of association. For example, under the Companies Act, changes to a company's articles of association must be approved by a special resolution, unless the articles of association provide otherwise.

3.3 Decision-Making Processes

Board of Directors

Board decisions are generally passed in the form of resolutions taken at board meetings. The decision-making process at board meetings is not covered by the Companies Act. The main statutory provisions relating to board meetings concern minutes of board meetings being kept and disclosure by directors of interests in contracts. Therefore, any meetings of directors are governed by the company's articles of association and by any rules made by the directors themselves by virtue of powers given to them by the articles of association. This gives companies great flexibility.

The articles of association will generally set out, among other things:

  • the notice periods to be followed in respect of a directors' meeting;
  • the process to be followed in cases where not all directors are physically present at the meeting; and
  • the quorum and voting requirements.

In most instances, a board resolution will require a simple majority vote.

Gibraltar law does not prevent board meetings from being held anywhere in the world and allows directors to participate at board meetings through electronic means. However, there may be tax consequences for a company in doing so.

Where a company's articles of association allow, the board of directors may also pass a resolution in the form of a written resolution without the need to convene a physical board meeting.


There are three types of resolutions which shareholders can validly pass.

Extraordinary resolution

An extraordinary resolution is a resolution that has been passed by a majority of not less than 75% of those shareholders who, being entitled to do so, vote in person or, where proxies are allowed, by proxy, at a general meeting of which seven days' notice (unless the articles of association require otherwise), specifying the terms of the resolution and the intention to propose the resolution as an extraordinary resolution, has been given.

Special resolution

A special resolution is a resolution which has been passed by whatever majority is required for the passing of an extraordinary resolution for which not less than 21 days' notice has been given.

Ordinary resolution

An ordinary resolution is a resolution which has been passed by a simple majority at a general meeting of which seven days' notice is given (unless the articles of association require otherwise). Anything that may be done by ordinary resolution may also be done by special resolution.

Written resolutions

It should be noted that, under the Companies Act, anything that can be done by a resolution of the shareholders of a company in a general meeting can be done without a meeting by means of a written resolution signed by all the shareholders of a company, provided the articles of association allow this. However, written resolutions must be passed by the unanimous consent of shareholders, rather than the specific majority that would ordinarily be required at a general meeting.

4. Directors and Officers

4.1 Board Structure

Under the Companies Act, every company must have at least two directors, except in the case of a private company, which must have at least one director. There is no statutory maximum number of directors, although a company may make provision for a maximum number of directors within its articles of association. A sole director of a company cannot hold the position of company secretary of the same company.

There are no formal requirements or qualifications to become a director and it is possible for both natural persons and corporate bodies to be appointed as directors. There is also no legal requirement for a company to appoint a natural person as its director, so, in effect, a company can be managed and controlled by a sole director that is constituted as a body corporate. The foregoing is subject to the company not being one which is licensed, authorised, recognised or registered by the GFSC to undertake a restricted or controlled activity. The auditor of a company cannot be a director or secretary of that company.

Directors may but are not required to hold a share qualification, so it is not a requirement to hold one or more shares in order to qualify as a director.

4.2 Roles of Board Members

The Companies Act does not predefine the role for each of the board members. Typically, the board will include any number of executive directors who have management responsibilities and who perform operational and strategic business functions such as managing people and looking after business assets. One executive director can be, and usually is, nominated as chairperson. The chairperson presides over the board discussions and usually has a casting vote (unless the articles of association provide otherwise).

The board may also contain non-executive members. The non-executive director's role is to provide a creative contribution to the board by providing independent oversight and constructive challenge to the executive directors. However, it is important to note that under Gibraltar law there is no distinction between executive and non-executive directors. As a consequence, non-executive directors have the same legal duties, responsibilities and potential liabilities as their executive counterparts.

4.3 Board Composition Requirements/Recommendations

See 4.1 Board Structure.

4.4 Appointment and Removal of Directors/Officers

A company is required to file at Companies House a return in the prescribed form containing particulars specified in the register of directors and a notification of any change among its directors, or of any of the particulars contained in the register, within 14 days from:

  • the appointment of the first directors of the company; or
  • a change of directors or of any of the particulars contained in the register.

Therefore, in effect, a company has 14 days from the date of its incorporation to provide Companies House with particulars of its first directors.

Subsequent directors are appointed in accordance with the company's articles of association. Under the model articles, any person willing to be appointed as a director, and permitted by law to do so, can be appointed by ordinary resolution of a general meeting or by resolution of the directors. Removal is again a matter for the company's articles of association but it would be expected that such a decision would require a resolution of a general meeting.

4.5 Rules/Requirements Concerning Independence of Directors


There are no legal requirements regarding the independence of directors under Gibraltar law. However, where a company is undertaking an activity which is deemed to be restricted or controlled under the financial services regulatory framework, and consequently regulated by the GFSC, the GFSC would expect the firm to be able to explain the basis for the number of independent non-executive directors appointed. The GFSC has established the following criteria, which should be considered when assessing the independence of individuals:

  • any financial or other obligation the individual may have to the undertaking or its directors;
  • whether the individual is or has been employed by the undertaking or a group entity in the past;
  • whether the individual is (individually or as part of another organisation) or has been a provider of professional services to the undertaking in the recent past;
  • whether the individual is or represents a significant shareholder;
  • circumstances where the individual has acted as an independent non-executive director of the undertaking for extended periods;
  • any additional remuneration received in addition to the director's fee, related directorships or shareholdings in the undertaking; and
  • any close business or personal relationship with any of the undertaking's directors or senior employees.

Where factors are identified which could suggest threats to independence, the board should consider and discuss whether the individuals are indeed independent and document their considerations in the board minutes.

Firms should re-assess the independence of the board and the individuals on the board periodically and should document and minute how the firm has considered these issues and has applied good practice.

Conflicts of Interest

Directors are subject to a fiduciary and common law duty not to put themselves in a position where their personal interests and duty to the company conflict, unless given consent by the company, and a director must not make a profit from their position unless authorised by the company to do so.

Similarly, the Companies Act imposes a statutory duty on directors to declare the nature and extent of any direct or indirect interest they may have in a contract or proposed contract to be entered into by the company. A director's failure to declare any interest in any contract or proposed contract to be entered into is an offence, and the director would be liable to a fine.

4.6 Legal Duties of Directors/Officers

Director and officer duties in Gibraltar are not codified under the Companies Act. Instead, they are imposed by virtue of the English common law and the equitable and fiduciary duties that were in place prior to the introduction of the UK Companies Act 2006. Broadly, these include the following duties:

  • to act bona fide in the best interests of the company;
  • to act for proper purposes and not act for collateral or improper purposes;
  • to exercise independent judgement;
  • to avoid conflicts of interest; and
  • to exercise reasonable skill and care.

The Companies Act and other statutory instruments, as well as a company's memorandum and articles of association, also impose additional duties and obligations on directors. For example, the Companies Act imposes a statutory duty on directors and officers to file certain returns with the Registrar of Companies (as further discussed in 6.1 Financial Reporting and 6.3 Companies Registry Filings).

4.7 Responsibility/Accountability of Directors

As discussed in 4.6 Legal Duties of Directors/Officers, directors' general duties are largely derived from equitable principles as well as common law rules. The duties of directors have therefore evolved though decisions of the courts, which have held directors to be in a fiduciary relationship with the company and therefore to owe it fiduciary duties. The courts have considered directors to be in a special position of trust in relation to the company, similar to that of trustees.

While directors' duties are owed to the company, that is not to say that directors are not required to take into account the interests of anyone other than the company when discharging their duties. For instance, in order to act in the best interests of the company as a whole, directors should have regard to the interests of key stakeholders, such as employees, suppliers and customers.

Directors owe their duties to the company rather than to the shareholders, creditors or other directors of the company. A director may, however, owe duties to the creditors of the company rather than to the shareholders in an insolvency scenario.

4.8 Consequences and Enforcement of Breach of Directors' Duties

As directors' duties are owed to the company, this means that the company itself (acting through the board of directors) must take action against a director for breach of these duties, as any wrong is committed against the company itself. This principle was established in the leading case of Foss v Harbottle (1843) 2 Hare 461, where it was held that a wrong done to the company may be vindicated by the company alone.

The Companies Act does, however, establish an exception to this rule. See further detail in 5.4 Shareholder Claims.

4.9 Other Bases for Claims/Enforcement Against Directors/Officers

In addition to a claim for breach of duty, as previously discussed, directors may be held liable for breaches of their statutory duties and obligations, such as those imposed under the Companies Act, the Insolvency Act and the financial services regulations (if applicable) which may, in certain instances, result in criminal penalties being imposed.

Under the previous Companies Act 1930, any provision in the articles of the company, or in any contract with the company, or otherwise, exempting any director, manager, officer or auditor of the company from, or indemnifying them against, any liability which would otherwise attach to them in respect of any negligence, default, breach of duty or breach of trust of which they may be guilty in relation to the company, was void. However, the Companies Act now clarifies that only indemnities provided by the company itself are void and further allows a company to purchase insurance for any director against any such liability.

The Companies Act also allows companies to indemnify their directors against any such liability incurred in defending any proceedings, whether civil or criminal, in which judgment is given in their favour or in which they are acquitted.

4.10 Approvals and Restrictions Concerning Payments to Directors/Officers

The Companies Act does not require any specific approvals in relation to a director's service contract. A director's service contract must therefore be approved in the same manner as any other commercial matter – ie, approved by the board, having regard to their duties and obligations to the company. Failing to obtain proper approval for such actions would result in the relevant appointments not taking effect.

Under the Listed Companies (Members' Rights) Regulations 2011, a listed company (that is, a company which has its registered office in Gibraltar and whose shares are admitted to trading on a regulated market situated or operating within the EU) must establish a remuneration policy as regards its directors, which must be approved at a general meeting and may only remunerate its directors in accordance with the remuneration policy.

Listed companies may derogate from the remuneration policy only in exceptional circumstances, and provided always that the policy includes procedural conditions by which such a derogation can take place and specifies the elements of the policy from which a derogation is possible.

The directors' remuneration policy is a binding policy and must be approved by the shareholders at least once every four years.

4.11 Disclosure of Payments to Directors/Officers

The Companies Act does not require the public disclosure of director remuneration.

Listed companies are required under the Listed Companies (Members' Rights) Regulations to prepare a remuneration report providing a comprehensive overview of the remuneration, including all benefits, in whatever form, awarded or due during the most recent financial year to individual directors, including to newly recruited and to former directors, and to make this report publicly available on the company's website, free of charge, for a period of ten years, beginning on the date it is first made public.

5. Shareholders

5.1 Relationship Between Companies and Shareholders

Shareholders provide some or all of the financial backing for a company. In exchange for investing in the company, a shareholder may receive a dividend and may also benefit from capital appreciation of the value of their shares. The money produced by the sale of shares enables the company to commence and continue its business.

Under Gibraltar law, a company has its own legal personality, which is separate from that of its shareholders. Shareholders will therefore only be liable for losses incurred by the company up to the value (if any) unpaid on their respective shares. It must be noted, however, that the concept of "piercing the corporate veil" is recognised in Gibraltar, and there may be certain instances whereby the company's separate legal identity will be set aside by the courts and the shareholders may become personally liable for the debts and liabilities of the company. For instance, courts will look behind the veil in cases of fraud or deliberate breaches of trust. In these cases, the courts ensure that an appropriate remedy is available against the individuals who have committed a wrong using a company they control.

The Companies Act establishes that the provisions of a company's constitution bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe those provisions. Therefore, the shareholders' relationship with the company is contractual. The rights of each shareholder will depend on the rights attached to their respective shares, and this will be set out in the company's articles of association.

In addition, shareholders may also elect to enter into a private shareholders' agreement to govern the terms on how they will behave in relation to the company. However, a shareholders' agreement is not compulsory. In addition, shareholders cannot be compelled to enter into a shareholders' agreement, and they may choose to do so only if it is in their interests. Therefore, while the articles bind all of the shareholders and the company, a shareholders' agreement would only bind the shareholders that are party to the agreement, and the usual remedies for breach of contract will be available if any of the parties commits a breach of its terms.

Shareholders' agreements may take many forms, and the need for them can arise in very different circumstances. The key benefit offered by a shareholders' agreement is that it is a private document which, in most cases, does not need to be made publicly available. A shareholders' agreement can therefore deal with private and personal matters which the shareholders prefer to keep off the public record. The articles of association, however, must be filed at Companies House and made available for public inspection. It must be noted, however, that shareholders' agreements must not include anything that fetters the company's powers to exercise its statutory duties.

Shareholders' agreements can also be useful to protect minority shareholders, as general contractual principles establish that all shareholders would need to approve a change to the agreement; whereas under the Companies Act, shareholder power is determined by a proportion of voting rights in the company.

5.2 Role of Shareholders in Company Management

Ordinarily, it is the board of directors that makes the day-to-day decisions affecting the company, and the articles of association normally govern how the directors exercise the powers of the company. The board of directors will involve the shareholders and call them to a meeting only when the need arises under the Companies Act – for example, because it is required to change the articles of association or to change the company's name.

Shareholders cannot simply overturn board decisions if they do not like the way in which the board is running the company. Instead, the shareholders have the right to appoint and remove directors from office in the articles of association. Therefore, the shareholders could remove the directors from office and replace them. In doing so, the shareholders should consider any potential employment or company law repercussions.

5.3 Shareholder Meetings

There are two types of meetings of shareholders of a company, namely:

  • annual general meetings; and
  • extraordinary general meetings.

On an annual basis, every company should hold a general meeting known as the company's annual general meeting, in addition to any other meetings in that year, and should specify the meeting as that in the notices calling it. Not more than 15 months should elapse between the date of one annual general meeting of a company and that of the next. However, as long as a company holds its first annual general meeting within 18 months of its incorporation, it need not hold it in the year of its incorporation or in the following year.

A company may, by special resolution, dispense with the requirement to hold annual general meetings. Therefore, the provisions of the Companies Act requiring that a company appoint an auditor or auditors at each annual general meeting shall be deemed to have no effect in respect of that company for such time and in respect of such years as the resolution shall have effect. This does not, however, circumvent the requirement placed on a company to appoint an auditor, but rather allows it to make a single appointment, without the requirement to review the appointment on a yearly basis.

Subject to the provisions of a company's articles of association, the Companies Act establishes the provisions that have effect as to meetings and votes. These include that:

  • a meeting of a company, other than a meeting for the passing of a special resolution, may be called by seven days' notice in writing;
  • notice of the meeting of a company should be served on every member of the company in the manner in which notices are required to be served by the articles;
  • two or more members holding not less than one tenth of the issued share capital or, if the company does not have a share capital, not less than 5% in numbers of the members of the company, may call a meeting;
  • in the case of a private company, one member, and in the case of any other company, three members, personally present, shall be a quorum;
  • any member elected by the members present at a meeting may be chairman; and
  • in the case of a company originally having a share capital, every member shall have one vote in respect of each share or each GBP10 of stock held by them, and in any other case every member shall have one vote.

Notice of a general meeting of a company must be given either in hardcopy form, in electronic form or by means of a website, or partly by one such means and partly by another.

5.4 Shareholder Claims

As discussed in 4.8 Consequences and Enforcement of Breach of Directors' Duties, directors' duties are owed to the company and not to the shareholders or any other stakeholder. Therefore, the general rule is that the company itself (acting through the board of directors) must take action against a director for breach of these duties, as any wrong is committed against the company itself.

However, in limited circumstances, the Companies Act allows shareholders to bring a derivative action on behalf of the company to enforce the company's rights and to seek relief on behalf of the company. This is an exception to the Foss v Harbottle rule.

Permission of a court is not needed to bring a derivative action, but it is needed to continue an action. A derivative action can be brought by a shareholder to bring a claim against another shareholder or director, for example for transactions at an undervalue and any action about which they feel aggrieved.

Derivative actions can only be brought in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, or breach of duty/trust by a director.

A shareholder can also apply to a court on the grounds that the company's affairs are being conducted in a manner that is unfairly prejudicial to the members (or a percentage of them). Unfair prejudice claims are usually brought by minority shareholders in situations where they feel that their rights have been infringed by the majority shareholders or by the board of directors. The complaint may be based on past, present or even anticipated future events, and the court has expansive powers in this regard, including:

  • the power to order the company to take or refrain from taking certain actions; and
  • the power to order the company to amend its articles.

5.5 Disclosure by Shareholders in Publicly Traded Companies

There are no disclosure or other obligations on shareholders or ultimate beneficial owners in publicly traded companies.

6. Corporate Reporting and Other Disclosures

6.1 Financial Reporting

Annual Return

Every company is required to deliver, at least once in every calendar year, an annual return to Companies House, setting out particulars relating to the company as specified in the Companies Act. The annual return is a snapshot of certain information relating to a company, which includes:

  • the name of the company;
  • the company's registered number;
  • the company's registered office address;
  • details of the company's directors and secretary; and
  • details of the company's share capital, including its shareholders.

Companies are also required to provide in their annual return details of their main activity. There is a prescribed format for the annual return, which can be found in Schedule 5 of the Companies Act.

The Companies Act establishes a separate regime in respect of the filing of annual returns by collective investment schemes. If a company notifies Companies House that it is a collective investment scheme, licensed, authorised or otherwise regulated under the FSA, then in the case of such a collective investment scheme (which is not a private fund) the annual return can omit details of shareholders and shareholding and is only required to include the amount of authorised and issued share capital, respectively. All other particulars required under the annual return would still need to be completed. An experienced investor fund, for instance, could take advantage of this exemption.

In both of the aforementioned cases, the annual return must be delivered within 30 days after the date up to which the annual return is made.

Private funds are required to deliver an annual return in the prescribed format, although they must deliver the return within six months after the date up to which the annual return is made. In addition, the Companies Act requires private funds to deliver a statement of allotments, redemptions and purchase of own shares, together with every annual return. This in turn replaces the requirement for these types of collective investment schemes to deliver a return of allotment every time they make an allotment of shares and to notify Companies House every time they make a redemption. A collective investment scheme which is not a private fund (for instance, an experienced investor fund) is neither required to complete a statement of allotments, redemptions and purchase of own shares nor to inform Companies House of every occasion where it allots or redeems shares.

It should be noted that these exemptions only apply to collective investment schemes that avail themselves of the voluntary notification process to Companies House of their specific status. A collective investment scheme may choose not to make such a disclosure, and therefore to forfeit the rights to the exemptions afforded under the Companies Act.

Directors' Report and Accounts

The directors of a company are required to prepare an annual report for each financial year. Generally, this report should include the following details of the company:

  • details of the company's likely future developments;
  • what dividend (if any) is recommended for payment;
  • a fair review of the development and performance of the business of the company (and its subsidiary undertakings, if applicable) during the financial year, as well as its position at the end of the year; and
  • a description of the principal risks and uncertainties facing the company.

The Companies Act also prescribes the accounting principles to be observed in preparing the annual accounts, the layout of the balance sheet and profit and loss account, and the content of the notes to the accounts.

Companies are classified as micro, small, medium or large, and the documents to be filed at Companies House vary according to their classification, as set out below.

  • Net turnover (pro-rated if more than or less than a year):
    • micro – up to GBP632,000;
    • small – up to GBP10.2 million;
    • medium – up to GBP36 million; and
    • large – over GBP36 million.
  • Balance sheet total (total assets):
    • micro – up to GBP316,000;
    • small – up to GBP5.1 million;
    • medium – up to GBP18 million; and
    • large – over GBP18 million.
  • Average number of persons employed:
    • micro – up to ten;
    • small – up to 50;
    • medium – up to 250; and
    • large – over 250.

A company must fall within two of the three parameters (set out above) in the financial year in question and the preceding year, in order to be classified as small, medium or large. If a company exceeds or ceases to exceed the limits of more than one of the parameters, it will continue to qualify for the relevant year unless that continues to be the case in two consecutive years. If the financial year is the company's first, the conditions only need to be met in its first financial year:

  • large companies are required to file full accounts, including the balance sheet, profit and loss account, notes, directors' report and auditors' report;
  • medium companies are required to file the same accounts as for large companies, except that the profit and loss account may be in an abridged format; and
  • micro and small companies are required to file an abridged balance sheet only.

Accounts may be filed in a number of primary currencies (such as British pound, US dollar, euro, Japanese yen and Swiss franc).

The relevant documents must be filed within 12 months of the financial year end. Special rules apply in the case of a company's first reporting period.

Different rules apply to companies that opt to prepare accounts in accordance with international accounting standards.

Defective accounts and directors' reports can be revised on a voluntary basis. Any revisions should be confined to the correction of those in which the previous accounts or report did not comply with the requirements of the Companies Act and the making of any consequential amendments.

6.2 Disclosure of Corporate Governance Arrangements

Under the Companies Act, a "mainstream company" whose securities are admitted to trading on a regulated market is required to include a corporate governance statement in its annual directors' report, and that statement must be included as a specific section of the directors' report and must contain at least a reference to the following, where applicable:

  • the corporate governance code to which the company is subject;
  • the corporate governance code which the company may have voluntarily decided to apply; and
  • all relevant information about the corporate governance practices applied beyond the requirements under Gibraltar law.

A "mainstream company" is defined under the Companies Act as a company which is neither a public company limited by shares or by guarantee nor a private company limited by shares or by guarantee, and that is neither:

  • a non-profit-making company;
  • a licensed or authorised bank; nor
  • a licensed insurance company.

6.3 Companies Registry Filings

In addition to the annual return and annual account filing obligations described under 6.1 Financial Reporting, companies are also required to deliver certain information to Companies House when particular changes occur within a company. Examples of event-driven filings include:

  • changes to the articles of association;
  • a change of company name;
  • allotment of shares;
  • giving, varying, revoking or renewing a director's authority to allot relevant securities;
  • the making of a statutory declaration by the directors of the company to give financial assistance;
  • a purchase of the company's own shares through financial assistance;
  • consolidating, dividing, converting, re-classifying, subdividing, redeeming, cancelling or re-converting stock into shares;
  • increasing the share capital beyond the registered capital;
  • any change in any member of particulars entered in respect of any member on the register of members;
  • re-denominating any of the company's share capital;
  • creation of a mortgage or change by the company;
  • the acquisition of any property that is subject to a change of any kind;
  • changing the registered office of the company;
  • dispensing with the requirement to hold an annual general meeting;
  • the passing of any special resolutions or extraordinary resolutions;
  • a change among the company's directors or in any of the particulars contained in the register of directors;
  • a change among the company secretaries or in any of the particulars contained in the register of secretaries;
  • a change to the company's accounting reference period; and
  • making a statutory declaration on the appointment of a voluntary liquidator.

The Companies Act applies various filing dates, depending on the event which triggered a filing requirement. In the majority of cases, the Act imposes a 30-day filing period. A mainstream company's accounts must be filed with Companies House once for each financial year of a company. The period allowed under the Companies Act for delivering its financial accounts is as follows:

  • for a private company, 12 months after the end of the relevant financial year; and
  • for a public company, ten months after the end of the relevant financial year.

Failing to comply with the accounts filing requirements before the end of the relevant period means that the company and every officer of the company who is in default is guilty of an offence and liable to pay a fixed penalty, determined as follows:

  • if more than 12 months but not more than 24 months after the end of the financial period to which they relate, a fee of GBP125 will be incurred; or
  • if more than 24 months after the end of the financial period to which they relate, a fee of USD175 will be incurred.

Under the provisions of the Companies Act, annual returns must also be filed within 30 days after the first or only general meeting in the year, and the company must forward to the Registrar a copy signed by a director, by the manager or by the secretary of the company. Failing to comply with such requirements means that the company and every officer of the company who is in default shall be guilty of an offence and liable on summary conviction to a fine at Level 4 on the standard scale and a daily fine at Level 3 on the standard scale.

All documents filed with Companies House are publicly available.

7. Audit, Risk and Internal Controls

7.1 Appointment of External Auditors

Unless a company qualifies as a small company (as defined under the Companies Act), the shareholders must, at each annual general meeting, appoint an auditor or auditors to hold office until the next annual general meeting.

Prior to the first annual general meeting, the first auditors of the company may be appointed by the directors at any time before that meeting, and auditors so appointed shall hold office until that meeting. The auditors may be removed by the shareholders, who may appoint a replacement auditor.

If a company qualifies as a small company and certain other conditions prescribed under the Companies Act are met, the requirements of the Companies Act relating to the appointment of auditors and the audit of accounts in respect of the applicable financial year shall not apply to that company.

A company will be classed as a small company if it meets two of the following three parameters in the financial year in question and the preceding year. If the financial year is the company's first, the conditions only need to be met in its first financial year:

  • it must have an annual turnover of not more than GBP10.2 million;
  • it must have a balance sheet total of not more than GBP5.1 million; and
  • its average number of employees must not be more than 50.

There are requirements that govern the relationship between the company and the auditor, including that:

  • an auditor shall have a right of access at all times to the books and accounts and vouchers of the company;
  • an auditor shall be entitled to require from the directors and officers of the company any such information and explanation as may be necessary for the performance of the duties of the auditors; and
  • an auditor of the company shall be entitled to attend any general meetings of the company at which any accounts which have been examined or reported on by them are to be laid out before the company, and to make any statement or explanation they desire with respect to the accounts.

7.2 Requirements for Directors Concerning Management Risk and Internal Controls

Under the Companies Act, the directors' report must contain a description of the principal risks and uncertainties facing the company. In addition, it must also contain a description of the principal risks relating to the non-financial information discussed in 2.2 Environmental, Social and Governance (ESG) Considerations arising in connection with the company's operations and, where relevant and proportionate:

  • a description of its business relationships, products and services which are likely to cause adverse impacts on those areas of risk; and
  • a description of how it manages the principal risks.

Originally published by Chambers Global Practice Guides.

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.