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International Focus Cyprus – Online Edition

Edition 2

The impact of the repeal of the International Business Companies Act

The BVI Business Companies Act, 2004 came into full effect on 1^st January 2007 at which point all existing International Business Companies were automatically re-registered as BVI Business Companies (BVIBCs).

Automatic re-registration means that your company’s IBC Memorandum and Articles are now deemed to be compliant with the BVIBC legislation under the Transitional Provisions. The Transitional Provisions are set out in Schedule 2 [Section 248] of the Business Companies Act, 2004.

Whilst there is presently no legal obligation to adopt and file an updated version of the Memorandum and Articles of Association, we advise that every client reviews their existing draft to assess the impact of the new provisions and consider the benefits of updating them. This is particularly important if the company falls into one of the following priority groups:

Your company has the capacity to issue bearer shares
Your company has the ability to issue over 50,000 shares

Companies with the capacity to issue bearer shares

From 1st January 2008, the licence fee for a company with provisions to issue bearer shares will suffer an incremental increase to $600. This will rise again in 2010 to $1,100. It is important to note that this increased licence fee is determined by the ability to issue bearer shares, irrespective of whether or not they have been issued.

If your company has the ability to issue bearer shares but has not done so, we would advise that you file an amendment to allow the issue of registered shares only. This amendment must be performed in 2007 to avoid the increased 2008 licence fee (all Jordans companies prior to mid-2003 were incorporated with the capacity to issue bearer shares as standard).

If your company has issued bearer shares, there are two options:

1. Retain the bearer shares and pay the increased licence fee. Bearer share warrants will have to be placed with an authorised custodian by 31st December 2010.

2. Convert the shares to registered form and adopt updated Memorandum and Articles of Association to allow the issue of registered shares only. Details of registered shareholders are not filed with the Registrar of Corporate Affairs and further confidentiality can be assured by holding the registered share by a nominee under declaration of trust.

Companies with the ability to issue over 50,000 shares

Under the IBC Act the concept of ‘share capital’ was paramount in deciding which licence fee bracket a company fell into. Share capital was the total combined value of all the shares that a company could issue. Companies with a share capital of $50,000 or less paid $350, and companies with a share capital of over $50,000 paid $1,100.

Under the new legislation, the licence fee is determined, purely, by the number of shares the company is authorised to issue, as stated in the Memorandum of Association. This will have adverse consequences on companies that had the “standard” authorised capital (of $50,000) but have issued shares at less than $1.00. The table below illustrates the difference:

IBC	BVIBC
100,000 shares of $0.50 Capital: $50,000 Licence fee: $350	100,000 shares of $0.50 Authorised number of shares: 100,000 Licence fee: $1,100

Disapplication of the Transitional Provisions

Legal practitioners in the BVI advise that, in the interests of clarity, all IBC’s consider amending their Memorandum and Articles as soon as is practicable. Where a company has been automatically re-registered some provisions of the Memorandum and Articles are overridden by the legislation and this means that the Memorandum and Articles must be read in conjunction with the Transitional Provisions in order to determine the position of the company. Clearly this is not an ideal situation. (The Transitional Provisions will come to an end, at some as yet undetermined point in the future. At that point your company will be forced to file a compliant Memorandum and Articles).

To disapply the transitional provisions a resolution is required, we then file a new BVIBC Memorandum and Articles of Association in respect of the company, before a Certificate of Disapplication is issued by the Registry. However, to achieve this end, this may need to be dealt with in stages. For example, provisions to issue bearer shares must be removed before the company may adopt a standard BVIBC draft, if the higher licence fee is to be avoided. This in turn has an impact on the cost of undertaking this work.

Costs

We are conscious that many companies will have to perform two or three amendments in order to disapply all the transitional provisions. In order that these amendments are not cost-prohibitive Jordans has created a number of packages to deal with the various scenarios in which automatically converted IBCs may find themselves:

1.	A single update for a recently incorporated IBC, with no current provisions to issue bearer shares and a $50,000 authorised share capital of $1.00 shares	US$250.00
2.	A single amendment (e.g. remove bearer share provisions)	$250.00
3.	Amendments to prohibit Bearer Shares and disapply the transitional provisions	$325.00
4.	Amendments to reduce the number of shares a company may issue and disapply the transitional provisions	$325.00
5.	Amendments to prohibit bearer shares, reduce the number of shares authorised to issue and disapply the transitional provisions	$400.00

In all cases, our fees include disbursements, the provision of a copy of the Memorandum and Articles of Association certified by the registered agent and certificate of re-registration issued by the Registrar of Corporate Affairs.

For further information on any of the above topics or to arrange a time for Mario Michaels to meet with you at your office please email mario.michaels@jordans.com.cy or telephone +357 22 76 72 94

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			Contacts
	Click contact name to email Mario Michaels + 357 22 767294 Kiki Eleftheriadou + 357 22 767294 Jordans (Cyprus) Limited Klimentos Tower, Office Suite No 13 41-43 Klimentos Street Nicosia 1061 PO Box 26692 CY1646 Cyprus Tel: +357 22 767 294 Fax: +357 22 767 202 Registered in Cyprus no. 108935

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