Whilst many individuals (collectively, the "Individuals", each an "Individual") are aware of the importance of succession planning to preserve continuity and stability in the transfer of assets upon death, such planning is often hindered by concerns over the high cost of establishing a robust trust structure. As a cost-effective alternative, an Individual may consider incorporating or converting an existing BVI company into a company with cascading share classes. This simplified succession mechanism eliminates the need for trust administration fees and significantly reduces complexity in succession planning.
In this structure, an Individual may hold assets through a BVI company with a share capital comprising multiple classes of shares—for example:
- Class A shares held by the Individual,
- Class B shares held by his/her spouse, and
- Class C shares held by his/her children (if appropriate).
During the Individual's lifetime, the Class A shareholder will have all the economic and voting rights in the BVI company. This means that only the Class A shareholder will have the rights to receive notices, attend and vote at shareholder meetings, and exercise decision-making authority at that level. The Individual may also serve as the sole director, maintaining full board-level control during his/her lifetime.
However, upon the Individual's death:
- All Class A shares are automatically redeemed and cancelled.
- If Class B shares are in issue, they are re-designated (on a one-for-one basis) into Class A shares.
- If no Class B shares exist at the time of death, Class C shares will instead be re-designated into Class A shares.
Because the transfer of economic and voting rights in the BVI company does not rely on a will, the cascading share process circumvents the need for probate – which is often lengthy and administratively burdensome. Under this structure, the Individual retains full control over the company and its assets throughout his/her lifetime.
The above-mentioned changes upon the Individual's death are effective only where there is at least one surviving holder of Class B or Class C shares. In the absence of any such Class B or Class C shares in issue, the Class A shares will be transmitted in accordance with the company's Articles of Association and so will likely pass to the Individual's estate in the unlikely event that there are no surviving Class B or Class C shareholders.
While the cascading share structure offers simplicity, it may not be suitable for all family scenarios. Cross-border families should seek advice regarding local tax and inheritance implications, as automatic share conversion may trigger jurisdictional issues. In addition, under BVI law, minors cannot hold shares directly, necessitating alternative arrangements for young beneficiaries.
We at Conyers can assist with:
- the incorporation of a BVI company,
- drafting bespoke constitutional documents tailored to each client's succession planning needs.
Where more comprehensive planning is required, we can also advise on the establishment and administration of BVI or Cayman trusts or Cayman foundation companies which can also be utilised in a similar manner as described above for estate planning purposes.
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.
