On August 1 2014 the Foreign Companies Act 2014 (the "FCA 2014") came into force replacing Part XI of the Isle of Man Companies Act 1931 ("Part XI"). A company incorporated in a jurisdiction outside the Isle of Man, and which establishes a place of business or that owns land in the Isle of Man, must register as a foreign company under the FCA 2014. This is known as F-Registration. The purpose and effect of F-registration is essentially to place a foreign registered company under a similar reporting and disclosure regime to an Isle of Man incorporated company. This note highlights the key changes arising from this new legislation, which have practical implications for the administration of foreign companies in the Isle of Man.
The meaning of "foreign company"
Section 4 of the FCA 2014 defines a foreign company as a person (by whatever name called) which has legal personality but is not an individual incorporated under the laws of a jurisdiction outside the Island, and goes on to provide that types of legal person such as a foundation, limited liability company, PCC, ICC and a limited partnership which has legal personality will each be a foreign company.
Foreign Companies to which the FCA 2014 applies
Section 5 of the FCA 2014 provides that a foreign company which (i) carries on, or is held out as carrying on, business from an established place of business in the Isle of Man or (ii) is the holder of land in the Island (other than by way of security) must register under the FCA 2014.
A key change from Part XI is that a foreign company (that, for example, wishes to demonstrate a nexus with the Isle of Man) can elect to be registered. This is the case even if the company does not carry on business or hold land in the Island.
Another important change is that section 5(3) provides that a foreign company shall not be treated as carrying on business in the Island by reason only of, inter alia, being a party to, or settling, legal proceedings; holding meetings or carrying on activities which relate only to its internal affairs; maintaining a bank account; purchasing or investing in assets (except in land in the Island); charging its property; receiving services (which consist of corporate services) which are provided by a the holder of a licence under the Financial Services Act 2008 permitting that holder to carry on the regulated activity of providing corporate services.
The practical implication of section 5(3) is that Isle of Man corporate service providers who administer foreign companies here, such as those incorporated in the British Virgin Islands, now have greater clarity on whether such companies must register. It appears for example that merely holding board meetings in the Isle of Man will not subject the company to the foreign company regime.
When registration is required and which forms are to be used?
Section 7 of the FCA 2014 provides that where a foreign company meets the requirements for registration, an application for registration must be made within one month. Similarly, a foreign company that elects to apply for entry to the Register must do so within one month of the election.
In terms of applying for registration under the FCA 2014, failure to register when required to do so is an offence. The penalties for commission of an offence under the Act are, namely (i) on conviction on information a fine or (ii) on summary conviction, to a fine not exceeding £5,000. Section 9 of the FCA 2014 sets out the required information which should be included in a form REGF application to register. The application must include, inter alia, the company's current name and registration number in its jurisdiction of incorporation. Under section 9(1)(b) of the FCA 2014 the name of the foreign company can be different from that under which it is incorporated in its original jurisdiction but only where the latter name is not legally permitted for use in the Isle of Man. The FCA 2014 provides that foreign companies which were already registered under Part XI when the FCA 2014 came into operation are not required to re-register.
Upon successful registration of a form REGF, the Companies Registry will issue a certificate of registration to the applicant confirming registration of the company.
Acceptance of documents
A foreign company must have an address at which it can accept service of process and notices (section 11 FCA 2014). If the foreign company has an established place of business in the Island this will be the address of that place of business. However, in the case of a foreign company that owns land in the Isle of Man, the address for accepting service can be either an address in the Island or an address outside the Island. In either case the foreign company must appoint a person or persons to accept service of process and any notices required to be served on the company.
Under the FCA 2014 there is no longer a need to identify a "designated officer" (who under Part XI was authorised to deliver, for registration, the documents and particulars specified in Part XI).
Notification of certain events
Section 13(1) of the FCA 2014 provides that a foreign company must notify the Companies Registry on the occurrence of certain events relating to the foreign company for instance if there is a change in relation to service of process and notices, if a liquidator or receiver is appointed in respect of the foreign company, if the foreign company ceases to exist, or if the foreign company ceases to be a company to which the FCA 2014 applies. In each case the notification of an event to the Companies Registry must be made on a form NCEF.
Return to be made under section 14 (Annual Return)
Within one month of the anniversary of the date of incorporation of the foreign company, an annual return must be made to the Companies Registry on a form ARF. Failure to meet this requirement will result in a late fee, in addition to the annual return fee, being incurred by the applicant. The current filing fee for making an annual declaration for F registered companies is £380.
Removal from the register
Under Section 17 of the FCA 2014, the Companies Registry may remove a foreign company from the register if the company demonstrates that it has ceased to be a foreign company to which the Act applies or the company fails to submit an annual return within four months after the company's return date. The removal of the company from the register must be published by the Companies Registry.
Fees payable under the Act
The Foreign Companies (Fees) Order 2014 and the Foreign Companies (Miscellaneous Fees) Order 2014 apply. A fee of £100 is payable to the Department on submission an application for registration under section 8 of the Act. In addition, a fee of £380 is payable on submission of an annual return under section 14 of the Act.
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.