Bearer Shares Compliance

B V I B EARER SHARE REG I ME – 2 0 0 7 U P DA T E

As clients will recall, in 2003 the BVI government introduced limitations on the use of bearer shares by International Business Companies (IBCs)1. To assist companies to comply with the new requirements various transition rules were adopted. One of the main transition rules imposed higher government licence fees if, after 2007, a company continued to retain the authority in its Memorandum of Association to issue bearer shares. The higher fees would apply even if the company did not have bearer shares in issue.

In July 2007 the BVI government, in response to recommendations by the BVI Association of Registered Agents and other members of the private sector, relieved IBCs of the need to amend their Memorandum of Association to avoid the imposition of the higher government fees. We believe that there will be no further changes to the bearer share regime and the transition rules.

SUMMARY OF FINAL BEARER SHARES RULES

1. Right to Issue Bearer Shares New companies incorporated in the BVI have the right to issue bearer shares if the authority to do so is expressly stated in their Memorandum of Association. Such companies, when authorised to issue up to 50,000 shares, are subject to an annual government licence fee of US$1,1002. In addition, they must deposit the bearer shares with a recognised or authorised custodian.

2. IBCs Until 2004 most companies formed in the BVI contained provisions in their Memorandum of Association that expressly stated that they had the right to issue bearer shares. In terms of the transition rules, now repealed, it is this large group of companies that were required to change their Memorandum of Association to include a prohibition against the issuance of bearer shares in order to avoid the imposition of the higher government fees.

July 2007 Changes

3.1 Any IBC, incorporated prior to 2005, which has the authority in its Memorandum of Association to issue bearer shares shall be deemed, effective 31 December 2009, to no longer have that authority.

3.2 Any IBC, incorporated prior to 2005, which wishes to retain the right to issue bearer shares can do so by electing that the rule in 3.1. will not apply to it. This is done by making the appropriate filing with the BVI Registry of Corporate Affairs.

3.3 The higher government fee payable by IBCs, which still wish to retain the right to issue bearer
shares will come into effect in 2010. During 2008 and 2009 these companies will continue to pay the same government licence fee that they currently pay.

3.4 Companies that are deemed not to have the right to issue bearer shares will continue to pay the present applicable government licence fee (US$350 per year in the case of companies with the authority to issue up to 50,000 shares).

ACTIONS TO CONSIDER

Clients who wish to retain the right to issue bearer shares should contact us so that we can assist the company to make the necessary election in time. Some clients may still want their existing Memorandum of Association to be amended so that it contains an express prohibition against the issuance of bearer shares. This need may exist where an institution (for example, a bank) with which the company maintains a relationship requires the Memorandum of Association to include the prohibition against the issuance of bearer shares. Our standard practice for these companies is to replace the existing Memorandum and Articles of Association with a new Memorandum and Articles of Association that also includes provisions that were introduced by the BVI Business Companies Act 2004. Our fee (inclusive of all government charges) for preparing and
filing the new documents with the BVI Registry of Corporate Affairs is US$200.

Other clients do not need to take any further action.

For information of the steps to be taken, please contact our offices.