Important Notice Regarding Changes to
BVI Bearer Share Rules

To Our Clients and Friends:

We are writing to bring you up to date on the latest changes to the British Virgin Islands ("BVI") law relating to bearer shares (acciones al portador; açoes ao portador), requiring prompt action.

THE NEW RULES

In 2004, the BVI adopted the BVI Business Companies Act, 2004 (the "New Act") to replace the International Business Companies Act. With few exceptions, companies formed after December 31, 2004 can only issue registered shares (acciones nominativas; açoes nominativas). Companies organized before this date must either (i) register their shares by December 31, 2009 or (ii) deposit the bearer shares with an authorized custodian by the same date (an option that few clients would agree to) and pay an increased annual government fee. Most clients will need to take action to register their company's shares before next year's deadline.

Bearer shares will become void if no action is taken and evidence of the company's ownership as well as the ability to transfer such ownership will be directly affected.

WHAT SHOULD BE DONE NOW?

Assuming the client does not wish to register the shares in a personal name, there are a number of options available. Most clients prefer one of the following:

  1. Create a Trust. By creating a trust to hold the shares of the BVI company, the shares become registered and the problem described above is resolved. A trust also offers the advantage of a legally recognizable means of passing ownership of the company and its assets to the client's beneficiaries in the event of death.

    We would be pleased to discuss with you the several available trust options.

  2. Redomicile the BVI Company to Panama. Both BVI law and Panama law permit a BVI company to transfer its domicile to Panama. On redomiciliation, the company is considered a Panama corporation and may issue bearer shares, as Panama has no present plans to abolish or restrict bearer shares. However, a legally recognizable means of passing ownership on death is lacking (unlike the trust option), and an increasing number of banks are not allowing clients to establish accounts for bearer share companies, which is another reason why the trust option above may be preferable.

  3. Form a Panama Holding Company. Clients also have the possibility of organizing a Panama corporation alongside the BVI company and registering the shares of the BVI company in the name of the Panama corporation, which can have bearer shares. However, this also lacks a legally recognizable means of passing ownership on death that the trust option above provides. Furthermore, not all banks will accept this alternative.

The need to respond to the restrictions on the use of bearer shares should be seen as a welcome opportunity for clients to review their present structure and to consider a trust for their investments.

Prompt action is required and you should contact our office at your earliest convenience to discuss your options.



 

GRANT, HERRMANN, SCHWARTZ & KLINGER LLP
675 THIRD AVENUE
NEW YORK, NY 10017-5704

TELEPHONE (212) 682-1800
FAX (212) 682-1850
E-MAIL: ghsk@ghsklaw.com

ESTABLISHED 1946