Constitutional position
Companies Law
Benefits of using a Jersey company
Company formation
Share capital
Continuing requirements
This article provides useful guidance on incorporating a private company under Jersey law by summarising the main legal requirements and general principles which apply in this regard.
Jersey is a self-governing dependency of the British Crown and does not form part of the United Kingdom. By constitutional convention established over some 900 years, Jersey has complete autonomy in all matters of internal government, including taxation.
Jersey's special constitutional position has been recognised by the European Union in Protocol 3 of the UK Act of Accession to the European Union. The protocol provides that the Treaty of Rome applies to Jersey only to the extent necessary in relation to the free movement of goods.
The Jersey government has restated its total commitment to the highest standards of tax transparency and information exchange (which has been proven on many occasions), having signed the Foreign Account Tax Compliance Act (FATCA) agreement with the United States in 2013 and implemented the Organisation for Economic Cooperation and Development's (OECD's) Common Reporting Standards (CRS). In doing so, Jersey became one of only a few jurisdictions to adopt the FATCA standards and full CRS rules, which further affirms its commitment to its international cooperation obligations. As a result of its ongoing legislative and regulatory developments to comply with the OECD's anti-money laundering and transparent tax practice initiatives, Jersey has developed efficient infrastructure, systems and practices which have already efficiently facilitated automatic information sharing with the United Kingdom for more than one year.
Recent industry figures also show that Jersey's banking, funds, private wealth and capital markets activities have continued to improve each year, which affirms its longstanding international reputation and increasing recognition. Excluding UK incorporated companies, this includes more listed companies in London than in any other jurisdiction.
The Companies (Jersey) Law 1991 (the Companies Law) is a comprehensive modern statute governing all aspects of the formation and administration of private companies in Jersey.
Benefits of using a Jersey company
The benefits of using a Jersey company in terms of company law provisions and tax treatment are broad but generally include:
- a separate legal identity;
- limited liability for shareholders;
- ease of transfer of ownership; and
- tax status.
The Companies Law enables capital to be denominated in any currency and share capital of either par value or no par value shares to be issued in various classes, including redeemable shares. The Companies Law also allows for the incorporation of guarantee companies, unlimited companies and protected cell companies (with the latter providing particular flexibility for investment business).
These features, coupled with a tax-neutral environment, enable Jersey companies to be structured to meet a wide variety of business purposes – from commercial trading and joint ventures to investment holding vehicles.
Name
When incorporating a company, the first step, although not compulsory, is to reserve a proposed company name with the Registrar of Companies and await formal approval. An informal indication as to whether a name is likely to be approved can usually be obtained within 24 hours and formal confirmation will be obtained shortly after.
The chosen name must not be confusingly similar to any existing company (including UK-registered companies) or misleading with regard to the company's intended activities. The name of a private Jersey company should end with 'Limited', 'Ltd', 'avec responsabilité limitée' or 'arl'. A company which uses one of these may, in setting out or using its name for any purpose under the Companies Law, do so in full or in abbreviated form.
If a name is regarded as similar to an existing company, the Registrar of Companies will require details as to the reason for the similarity and it may be necessary to obtain the existing company's permission for using the name.
Memorandum and articles of association
A memorandum of association contains a company's constitution and, among other things, sets out the company's name, a statement as to its corporate capacity and details of the following, where applicable:
- the fact that there is no limit on the number of shares that the company may issue (for a no par value company);
- the number of shares of each class that the company may issue (for a par value company);
- the amount which each member undertakes to contribute to the assets of the company on winding up (for a guarantee company); or
- the fact that there is no limit on the liability of the company's members (for an unlimited company).
On incorporation, the memorandum and articles of association constitute a contract which binds the company and its shareholders.
The memorandum and articles of association must be subscribed by at least one subscriber who agrees to become a shareholder in the company. There can be more than one subscriber and the memorandum of association is generally subscribed by two subscribers.
Application documents and fees
Next, the following is filed with the Registrar of Companies:
- an application for incorporation signed by a person licensed to conduct trust company business pursuant to the Financial Services (Jersey) Law 1998;
- the completed memorandum and articles of association;
- certain other prescribed information; and
- the appropriate fee (currently £165).
Following the registration of the company's memorandum and articles of association, the registrar will issue a certificate of incorporation. The company will come into existence as a legal person from the date stated in the certificate.
The Companies Law confirms that a certificate of incorporation is conclusive evidence of the company's valid incorporation. The certificate will normally be issued within two days of application for incorporation. However, in urgent cases, companies can be incorporated within one working day on payment of a supplemental fast-track fee (currently £385) or within two hours on payment of £605, provided that all of the prescribed information is supplied to the registrar.
Subscribers
It is generally most convenient for a Jersey company to be incorporated by shareholders who are resident in Jersey and available to attend to all registration formalities.
Beneficial ownership
The identity of the ultimate beneficial owners of holdings of more than 10% of the shares in a Jersey company must be disclosed on a confidential basis to the registrar on incorporation. The registrar may ask that information regarding ultimate beneficial owners with holdings of less than 10% be provided. Any changes to beneficial ownership and control must be notified to the Companies Registry within 21 days.
If the shares are to be held in a trust, the name of the trust, the names of the trustees and the name and address of the settlor (or instigator) of the trust must also be disclosed. However, if the shares are to be owned by a quoted public company whose shares are listed on a recognised stock exchange, the requirement to disclose ultimate beneficial ownership is dispensed with and a copy of the latest audited consolidated accounts and report of the directors of the quoted company must be submitted to the registrar instead.
Where the proposed ultimate beneficial ownership is 'widely diffuse' (ie, no individual alone or in concert with any associates will control more than 10% of the shares), the registrar may be willing to relax the disclosure requirements. If it is expected that further beneficial owners will be introduced within six months of the date of incorporation, details of the proposed arrangements must be provided to the registrar.
While the register of beneficial ownership kept by the registrar is available to law enforcement agencies and tax authorities on request, it is not publicly available.
Par value companies
A par value company can issue shares that have a nominal element (and possibly a premium element). The company will thus maintain a share capital account and (where the shares are issued at a premium) a share premium account. The total amount of the initial authorised share capital and the par value of each authorised class of share is stated in the memorandum of association. There is no minimum authorised or issued share capital requirement under Jersey law.
In the case of a par value company, monies payable on the redemption or buyback of shares may be funded from any source (other than the capital redemption reserve or the nominal capital account) including capital. The directors who authorise the redemption or buyback must make a solvency statement in a prescribed form.
Distributions by a par value company are permitted from any source (other than the capital redemption reserve or the nominal capital account) without the need to obtain either shareholder or court approval for a reduction of capital. The directors must make a solvency statement in the prescribed form for any distribution, redemption or buyback.
No par value companies
A no par value company issues shares which are not expressed as having a nominal value. On the issue of a no par value company's shares, the proceeds, whether in the form of cash or otherwise, will be credited to a stated capital account. The number of shares of each class which a no par value company can issue is stated in the memorandum of association.
The provisions set out above for par value companies – in respect of both the redemption or repurchase of shares and the making of distributions – also apply to no par value companies. However, as regards distributions, a no par value company can also make a distribution out of its stated capital account.
Unlimited companies
An unlimited company is one which has shares in issue and no guarantee members. The shares that are issued by an unlimited company are called unlimited shares. On a winding up, the holder of unlimited shares has unlimited liability to contribute to the assets of the company.
Guarantee companies
A guarantee company has only guarantee members. On a winding up, these members must make a contribution to the company's assets, subject to an agreed guarantee limit.
The law does not prevent the incorporation of hybrid companies which have guarantor members and shareholders with either par value shares or no par value shares. This may be of benefit where the guarantor members and the shareholders are to have different rights (eg, the right to receive dividends or a distribution on winding up).
Form and structure of shares
Shares must be issued in registered form, as bearer shares are not permitted. However, it is possible to achieve an effect similar to transferability on delivery by the use of depositary receipts. Non-voting shares are allowed and proportional voting structures may be achieved through the use of weighted voting rights. The issue of fractional shares is also permitted.
Share capital may be structured with different rights attaching to different classes of shares, for example:
- ordinary shares – these may be further divided into separate classes, each having different class rights;
- preference shares – these may be issued having preferential and cumulative entitlement to dividends, as well as preferential rights to distributions on a winding up over ordinary shares; and
- redeemable shares – these may be issued on the basis that they will be redeemable in cash at the option of either the shareholder or the company. Ordinary shares may be converted into redeemable shares provided that a class of non-redeemable shares remains in issue.
Jersey companies can hold their own shares as treasury shares and will not be treated as members by virtue of holding such shares. The holding of such shares is of particular value to investment funds where a fund manager may want shares of the fund to be available to investors on short notice.
Corporate purposes
The Registrar of Companies must be informed of the company's corporate purposes. If the company will be involved in the provision of banking, insurance, trust, investment or financial services or certain other sensitive activities, detailed information regarding the proposed activities must be disclosed and various other licences may be required.
Registered office
A company must have its registered office at an address in Jersey, which must be notified to the registrar at the time of its incorporation. The registered office functions as the company's official address where statutory communications can be sent and documents can be served.
Directors
Jersey private companies must have at least one director. A Jersey private company need not have directors on incorporation but cannot function until directors are appointed. However, there is no requirement for a director to be resident in Jersey. A register of directors must be maintained at the registered office which is open to inspection by the shareholders and the registrar but, in the case of private companies, such information is not a matter of public record.
Jersey companies can have corporate directors provided that the body corporate acting as a director is registered to provide such services pursuant to the Financial Services (Jersey) Law 1998 and does not itself have any directors who are bodies corporate. However, the body corporate need not be a Jersey company.
Directors may participate in meetings by electronic means, such as via telephone or videoconferencing.
Secretary
A secretary must be appointed by the board of directors. A sole director may not act as secretary and no company may have as secretary a body corporate whose sole director is sole director of the company. The secretary's principal duties are:
- keeping minutes of directors' and shareholders' meetings;
- maintaining the register of shareholders;
- recording transfers and new issues of shares; and
- maintaining the register of directors and ensuring that the statutory requirements (eg, filing the annual return (see below)) are fulfilled.
Pre-incorporation contracts
Where a person purports to enter into a contract in the name of or on behalf of a company which has yet to be incorporated, the contract will take effect as one entered into by that person, who will be personally liable thereunder. After incorporation, the company may within a reasonable time unilaterally adopt the contract and become bound by it as if it entered into the contract after its incorporation. Such adoption will release the person who purported to act on the company's behalf.
Inaugural board meeting
Before commencing trading, the initial directors of the company, having been appointed by the subscribers to the memorandum of association, will hold the inaugural board meeting to:
- decide the location of the registered office;
- adopt the corporate seal (if required);
- allot shares to the subscribers and first shareholders and issue the share certificates to approve any share transfers;
- appoint bankers;
- approve a secretarial and management agreement to fix a financial year end; and
- adopt an accounting currency and standards
Operation of Jersey companies
The directors of a company are usually authorised to manage its business and exercise its powers in accordance with the provisions of the memorandum and articles of association and the Companies Law. A newly incorporated company has unrestricted corporate capacity. The directors owe a fiduciary duty to the company to act honestly and in good faith with a view to the company's best interests. Directors have ostensible authority to bind the company to contractual obligations but must disclose to the company any interest in a transaction which may conflict with the company's interests. Failure to do so may render the transaction voidable at the instance of the company or a shareholder.
Annual return
All Jersey companies must file an annual return signed by a director or the secretary by the end of February in each year made up to 1 January in that year. This must be accompanied by the filing fee, which currently stands at £235 for the filing of the return in paper form or £225 for using the online filing facility for a company. Annual returns must disclose:
- the names and addresses of the registered shareholders, with details of their holdings; and
- the authorised and issued share capital.
Annual returns are available for public inspection. Financial penalties are imposed for the late filing of an annual return and failure to file could result in the company being struck off the Companies Register.
Accounts
The Companies Law requires companies to maintain accounting records which are sufficient to show and explain their transactions and disclose with reasonable accuracy their financial position. There is no need for a private company's accounts to be audited, unless this requirement is included in its articles of association.
The accounts must be prepared in accordance with generally accepted accounting principles and specify the accounting principles adopted. In the case of any private company whose articles of association require it to appoint an auditor, it must prepare accounts which show a true and fair view of or present fairly in all material respects its financial position.
Annual accounts must be prepared within 10 months of the end of the company's financial year and should be made available to shareholders. Accounts need not be filed with the Registrar of Companies or the Income Tax Department.
AGMs
Private companies are not required to hold an annual general meeting (AGM), unless they are deemed a relevant private company. A relevant private company is one where provision requiring it to hold an AGM was made in its articles:
- after the Companies (Amendment 11) (Jersey) Law 2014 came into force on 1 August 2014; or
- before the coming into force of the law, where such provision was ratified by special resolution after the amendment's coming into force.
Even if a company is a relevant private company, the requirement to hold an AGM can be waived by written agreement of all of its shareholders.
A public company must hold an AGM each year and its first AGM must be held within 18 months of incorporation.
All members of a public or relevant private company can agree in writing to dispense with the requirement for an AGM.
An AGM need not be held in Jersey. The notice period for calling an AGM is 14 days. If all of the shareholders entitled to attend and vote at the AGM so agree, an AGM may be held on shorter notice.
Register of shareholders and officers
A private company must maintain registers of its shareholders, directors and secretary at its registered office. The registers must be available for inspection by the shareholders and the registrar. Any change in location must be notified to the registrar.
Special resolutions
A company must file with the registrar a copy of any special resolution passed by its shareholders. A special resolution is one passed by a majority of no less than two-thirds of shareholders or such greater percentage as specified in the articles who vote in person or by proxy at a general meeting of the shareholders of which no fewer than 14 days' notice of the special resolution has been given. It is also possible for a majority in number of the shareholders entitled to attend and vote at the meeting and holding at least 95% of the total voting rights in question to consent to shorter notice. A special resolution must be filed with the registrar within 21 days of being passed and there are fixed penalties for late filing. Special resolutions of a company are required for the following (although this list is not exhaustive):
- a change of company name;
- a change to the memorandum or articles of association;
- a change of share capital;
- a purchase of own shares by a company; and
- a winding up.
Shareholders' resolutions, both special and ordinary, may be passed without a meeting by means of written resolutions signed by all shareholders of the company if not prohibited by the company's articles of association.
Tax regime
As noted above, the states of Jersey passed legislation to introduce a general zero rate of income tax with effect from January 2009. This zero rate of income tax applies to all companies other than those which are managed and controlled outside Jersey (see below) or to which an exception applies.
A Jersey company may be exclusively tax resident outside Jersey provided that:
- it is centrally managed and controlled in another jurisdiction outside Jersey;
- it is tax resident in that other jurisdiction; and
- the highest rate of corporation tax in that other jurisdiction is 10% or above.
The exceptions to the standard zero rate are:
- 'financial service companies' (as defined in the Income Tax Law), which are taxed at 10%;
- utility companies, which are taxed at 20%; and
- income specifically derived from Jersey property rentals or Jersey property developments, which is taxed at 20%.
No stamp duty is payable on the transfer of shares in a Jersey company and there is no corporation or capital gains tax in Jersey. Jersey also does not levy any annual taxes or charges by reference to a company's authorised or issued share capital. Although there is a goods and services tax at a rate of 5%, companies beneficially owned outside Jersey which do not supply goods or services in Jersey will generally qualify for international service entity status – effectively bringing them outside the scope of the goods and services tax regime provided that a fee is paid each year.
Substance
From 1 January 2019, the new proposed requirements for an economic substance test for Jersey tax-resident entities applies. The new substance requirements were implemented to meet the EU Code of Conduct Group's requirements and establish new tests for certain tax resident companies carrying on relevant activities in respect of demonstrating that they are directed and managed in Jersey and that their core income-generating activities are undertaken there. The law requires a company to carry out all activities relating to its business in Jersey. This requires each company to carry out an analysis as to what functions must be carried out in Jersey, which is likely to vary depending on the function and purpose of the company. As set out above, a company will be tax resident in Jersey unless it is deemed exclusively resident elsewhere.
For further information on this topic please contact Raulin Amy or Simon Dinning at Ogier's Jersey office by telephone (+44 1534 514 000) or email ([email protected] or [email protected]). Alternatively, contact Nathan Powell at Ogier's Hong Kong Office by telephone (+852 3656 6000) or email ([email protected]). The Ogier website can be accessed at www.ogier.com.
