Introduction to Guernsey
Guernsey is a British Crown dependency located in the English Channel. Guernsey has established itself as an international finance centre, offering a range of services including banking, insurance, investment funds, wealth management, and trust and corporate services. It is widely seen as one of the best regulated jurisdictions in the world for such services.
There are over 60,000 Guernsey companies in existence, of which the vast majority are owned by people not local to the island. Guernsey companies are a key tool in wealth management and preservation and are frequently used as Special Purpose Vehicles to undertake transactions and make investments worldwide.
Guernsey has a mixed legal system. The Anglo-Saxon Common Law system has a major influence, but the core source of law is Norman Customary Law. The legislation pertaining to all Guernsey companies is the Companies (Guernsey) Law 2008. The law is notably modern and flexible compared to many jurisdictions.
Incorporation of a Guernsey Company
Providing all required CDD and beneficial ownership information has been provided, a Guernsey company can be incorporated within a day (or same day under a "fast track" application).
The incorporation must be undertaken by a Guernsey regulated corporate services provider such as Verfides and the company must also retain a local director or a licensed corporate service provider as Registered Agent at all times.
The company must adopt a Memorandum & Articles of Association as its constitution on incorporation, which is filed at the Registry. The Objects of the company are unrestricted unless any such restrictions are provided in the Articles.
Each company must have a Guernsey registered office and file an Annual Validation with the Guernsey Registry. A company secretary may be appointed but is not a requirement.
Key Features of Guernsey Company Law
Liability of Members
The most commonly used form of company in Guernsey is the Company Limited by Shares. A member's or shareholder's liability is then limited to the capital subscribed. A company limited by shares can have one or more members and only requires a minimum of one director (who can also be the sole member, if required).
An alternative form is a Company Limited by Guarantee. Here members guarantee a sum of capital in the event of a winding up. Shares are not issued and these companies are normally used for non-commercial purposes.
A company may also issue Unlimited Shares, or a combination of Limited and Unlimited Shares (the latter known as a "Mixed Liability Company". Unlimited shares do not entitle the holder to any limitation of liability in the event of a winding-up.
Two forms of Cell Companies also exist and are discussed further below. The law generally allows one type of company to convert to another following a prescribed process.
Shares and Share Capital
- There is no authorised share capital requirement nor any minimal issued share capital requirement
- More than one class of share may be issued
- No share premium account is required, so the value of any share issued at a premium is creditable to the share capital account (which can be used without restriction – see below)
- There is no stamp duty on the issue or purchase of shares
- Shares may be designated as redeemable
- Companies may purchase their own shares
- Share may be issued in any currency
Distributions and Solvency
The concept of distributable reserves is not relevant in determining whether a Guernsey company may make a lawful distribution to members. Under Guernsey company law, a distribution can be made out of the company's total assets, providing that immediately afterwards the company meets the Solvency Test. That could include, for instance, a distribution out of share capital or out of an unrealised revaluation reserve. The Solvency Test requires that the company can meet its debts as they fall due and that the value of its assets are greater than its liabilities.
Tax, Accounting and Audit Requirements
Companies registered in Guernsey are considered tax resident in Guernsey. The rate of income tax for corporations is 0% unless the company is carrying on certain businesses locally on the island. There is no capital gains tax, inheritance tax, capital transfer tax, stamp duty, VAT / sales tax or withholding taxes.
Accounts and Accounting Records
Each company must prepare annual financial statements including a profit and loss account and balance sheet, which must be approved by the Directors. The approved accounts should be sent to each member of the company. Adequate accounting records must be maintained at the registered office to allow the preparation of those accounts and to determine at any point the financial position of the company.
A company is not required to file accounts with the Registry and they are not publicly available.
Most companies are exempt from requiring an audit, but larger companies may require an annual audit based on turnover and asset values and number of employees.
Regardless of size, an asset holding company (one holding only shares, securities, other investments and land) may claim exemption from audit, providing all of its members are directors.
Guernsey Company Registry
All Guernsey companies appear at the Registry, which is publicly searchable. However, only limited details can be viewed, and this does not include details of the beneficial owners of the company or financial statements, such that key information is largely private.
The only publicly available information is:
- the Memorandum and Articles
- the certificate of incorporation;
- the status of the company and whether it has been dissolved, put into liquidation or listed for strike off;
- the details of the registered office and resident agent;
- the names of directors and any changes made to the directors; and all special, waiver and unanimous resolutions of the company.
Economic Substance Requirements
All companies with activities and income in a relevant sector in an accounting period will be required to demonstrate that they have adequate substance in the Island. The adequate substance requirements, will generally require that a company:
(a) is directed and managed in the Island;
(b) has an adequate number of (qualified) employees proportionate to the level of activity carried on in the Island;
(c) has adequate expenditure proportionate to the level of activity carried on in the Island;
(d) has an adequate physical presence in the Island; and
(e) conducts core income-generating activity ('CIGA') in the Island
The relevant sectors are:
- Fund management (not including Collective Investment Vehicles)
- Finance and leasing
- Distribution and Service Centres
- Operation of a Holding Company (but see below for reduced substance requirements)
- Holding intangible property (Intellectual Property)
A pure equity holding company is subject to reduced economic substance requirements, which will generally mean it is required only to hold board meetings in Guernsey to conduct its holding activities.
Protected Cell Companies (PCCs)
A Guernsey PCC is a legal entity that consists of a core company and individual cells, each with limited liability. The core company is responsible for managing administrative functions, while the cells function as separate compartments within the PCC. Each cell is legally distinct and operates independently, with its own assets and liabilities, has its own balance sheet and issues its own shares. This segregation ensures that the assets of one cell are protected from the liabilities of other cells or the core company. A PCC is one company with one board of directors, one memorandum and articles of incorporation and one company registration number.
A PCC and its affairs must be administered by a licensed person with a place of business on Guernsey. In order to incorporate a PCC the consent of the GFSC must be sought in advance.
One of the primary benefits of Guernsey PCCs is asset protection. By segregating assets within individual cells, PCCs can shield each cell from claims or liabilities arising in other parts of the structure. This feature is particularly advantageous for businesses or investors with diverse portfolios or those involved in high-risk sectors.
PCCs offer flexible structure that can adapt to the changing needs of businesses and investors. Cells within the PCC can be easily added or removed without the need for complex restructuring or legal processes. This flexibility allows for efficient portfolio management and facilitates the expansion or contraction of business activities as required.
Incorporated Cell Companies (ICCs)
A Guernsey Incorporated Cell Company is a company that can comprise any number of incorporated cells. The main difference between a PCC and an ICC is that each cell is a separately incorporated legal entity with its own board of directors, memorandum and articles of incorporation and company registration number. At least one director of the company must be a director of a cell.
An ICC and its affairs must be administered by a licensed person with a place of business on Guernsey. In order to incorporate an ICC the consent of the GFSC must be sought in advance.
A non-cellular company may convert into an ICC and an ICC may convert into a PCC or a non-cellular company, and an ICC cell may be converted into a non-cellular company.
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.