Business Entities

Guide to "doing business" entities

Choice of entity                                                                                            

A locally incorporated company in Montserrat is the most common vehicle for foreign investment, and often this is the most tax-efficient method.

Capital requirements

The minimum share capital is EC$1. There is no maximum.

Founders' requirements

Two subscribers are required to form a private company; a public company requires five. Company formation is a  simple matter, requiring the drafting of a memorandum and articles of association and filing these with the Registrar of Companies. The cost is approximately EC$1,500 (US$552.)                                                                                                                     

Foreign ownership participation in management

Once approval for the project has been obtained, a foreigner may be a director. Employees may serve as directors at the discretion of the shareholders.

Repatriation of funds

Normally consent would be obtained from the outset. Provided any relevant taxes have been paid, Exchange Control approval will be given to remit profits in normal circumstances.

Liquidating an investment

This involves the appointment of a liquidator, who would normally be an accountant or lawyer, to wind up the company's affairs. If a company owned land and a non-citizen wished to buy, an alien landholder's license would be needed.

Tax considerations

Companies pay tax at 30 percent of profits. Companies and businesses can deduct justifiable directors fees and reasonable expenses incurred e.g. toward advertising.

A tax holiday is usually granted to a new business. The tax advantage of the local company is that if a tax holiday is given, profits may be accumulated and not necessarily taxed in the country in which the foreign shareholders reside until distributed as dividends. This is not always the case, of course, and depends on the tax laws of the country concerned.

Professional advice

It is prudent to obtain proper legal advice before doing business in Montserrat.

Forms of business enterprise

Corporation

Private and public companies are governed by the Companies Act 1999. The distinctions between a private and public company are as follows.

1. The minimum number of shareholders required for a private company is two and the maximum (excluding employees and ex-employees) is 50. In the case of a public company, the minimum is five and there is no maximum.          

2. The articles of association (bylaws) of a private company must limit the number of shareholders to 50 and prohibit any invitation to the public to subscribe for shares or debentures.

Business                                                                                                                                       

Every industry, manufacture, trade, business, and engagement in commercial activity of any kind, whether conducted by an individual or a partnership, is classified as a business and must register under the Registration of Business Names Ordinance. There are forms available at the Registrars Office, and it is also necessary to obtain a Trade license from the Treasury. Not included in this definition are corporations, the business of farming and fishing, the provision of services in the course of employment, and the practice of a profession.                                                          

Partnership

A partnership must register under the Registration of Business Names Ordinance.

A foreign partner would need the approval of the Ministry of Finance.                                                       

Joint venture

Approval would be required for the foreign venturer to operate in Montserrat. A work permit would also be required if a noncitizen needs to work in Montserrat.

Branch of a foreign corporation

A branch needs to be registered with the Registrar of Companies, and permission to operate in Montserrat is required from the Ministry of Finance.

Sole proprietorship

Registration is required under the  Registration  of Business  Names Ordinance and a work permit is necessary for a foreign national wishing to operate as a sole proprietor in a local business venture.                                  

Foreign enterprise entities

Generally, foreign investors choose to operate through a company incorporated in Montserrat.   Tax holidays are usually granted for the businesses that foreigners normally wish to operate, e.g., hotels and manufacturing, overriding this consideration. Taxing considerations outside Montserrat may be paramount in deciding on the most tax-efficient structure to use, since earnings of subsidiaries in Montserrat may not be taxed in the home territory until distributions of profits are made, while a branch of a foreign corporation, on the other hand, is more likely to be taxed on Montserrat profits in its home territory as they arise, regardless of whether distributions are made or not.

Apart from enjoying limited liability, the use of an Montserrat company provides a convenient vehicle and facilitates joint ventures with local persons. Additionally, there is no capital gains tax in Montserrat, so a disposal of shares at a later stage will not be subject to Montserrat tax.

Corporation

Formation procedures

In accordance with the provisions of the Companies Act, any two or more persons (in the case of a private company, any two or more persons) may, by subscribing their names to a memorandum and articles of association, form a company with or without limited liability. The most common form of corporation is a company limited by shares.

The memorandum of association (articles of incorporation) must state the following.

1. Name of the company, with "limited" as the last word of the name.

2. Address of registered office.                                                                                                              

3. Objectives of the company.

4. That the liability of the shareholders is limited.

5. Amount of the authorized share capital with which the company proposes to be registered and the division thereof into shares of a fixed amount.

The articles of incorporation are normally accompanied by articles of association (bylaws)  which set out the regulations of the company.  The articles of incorporation and bylaws must be signed by at least two subscribers in the presence of a witness, and each subscriber must take at least one share in the capital of the company.  A statutory declaration of  compliance with the requirements of registration must be completed by an attorney-at-law engaged in the formation of the company and presented to the Registrar of Companies with the articles of incorporation and bylaws for registration.

On registration, the Registrar of Companies will issue a certificate of incorporation. This document confirms that all registration requirements set out in the Companies Act have been met. 

At this stage, a file is opened for the company at the Court House, and all subsequent annual returns showing details of share capital, shareholders, directors, and secured indebtedness will be placed in this file. The file is available for inspection by members of the public on paying a nominal fee.

The formation of a company can be accomplished in a matter of days, the limiting factors being the time involved in obtaining the approval of the Registrar of Companies for the use of the name and the time spent in preparing the articles of incorporation and bylaws.

Registration fees payable depend on the amount of the nominal share capital as stated in the articles of incorporation.

The largest item of expense in the formation of a company is usually the legal fee incurred in the preparation of the articles of incorporation and bylaws.                                                                                       

Capital structure                                                                                              

A company's nominal or authorized share capital and the division of that capital into shares is set out in the company's articles of incorporation. There are no statutory limits on the amount of the initial authorized share capital of a company. If the company's bylaws permit, the authorized share capital may be increased by a resolution of the company in general meeting. The issued share capital cannot exceed the authorized share capital.                                                                                        

Shares must have a stated nominal value which may be any amount, but "no-par value" shares are not permitted. Both registered and bearer shares are permitted. Bearer shares must be fully paid up and their issue must be specifically authorized by the company's bylaws. Generally, shares may be of different classes having different voting rights. Common stock (ordinary shares) usually have voting rights and have no restriction of dividend rights.

A company may issue preference shares (preferred stock) that are redeemable out of profits otherwise available for dividends or out of the proceeds of a fresh issue of shares made for the purpose of the redemption. A company may not purchase its own shares or provide financial assistance for their purchase. Preferred stock cannot be redeemed unless fully paid. Legal requirements include provisions designed to ensure that the capital of a company remains intact. A company may not, therefore, pay a dividend out of capital; and a reduction  of capital, whether by a refund to shareholders or otherwise, can only be made if  sanctioned by the Court, and if certain other provisions of the Companies Act are satisfied. These provisions are designed to protect the interests of creditors.

Capital or revenue reserves may be applied in paying up unissued shares for issue to shareholders. Such an issue is referred to as a "bonus," "scrip" or "capitalization" issue of shares. Shares may be issued at a premium (i.e., for a consideration that exceeds their nominal amount), in which case the amount of the premium is treated as a special form of capital reserve that can only be used for certain  specified purposes or in accordance with the sanction of the Court. Shares can be issued at discount only with the sanction of the Court and only if of a class already issued.

The liability of each shareholder of a company limited by shares is limited to the amount, if any, unpaid on the shares held by him. Partly paid shares are unusual, so that in practice shareholders of most limited companies, once having paid for their shares, have no further liability.

Relationship of shareholders, directors and officers                                                                       

Conduct of the entity                                                                                                                                     

The conduct of the business of the company is the responsibility of the directors. There is no statutory requirement that a director must be a shareholder of the company, but the bylaws frequently require a director to hold a specified number of shares, termed a share qualification. The directors are usually appointed by the shareholders to hold office for a period specified by the bylaws. The directors often appoint one or more of their number to hold executive positions in the company, such as managing director. They also appoint one of their number as a chairman; the director so appointed may or may not hold a full-time executive position.

The company's bylaws contain provisions dealing with the powers and duties of the directors. In carrying on the business of the company, the directors are subject to a large extent to the same laws as businessmen carrying on business on their own account, including any laws relating particularly to the trade in which they are engaged. The obligations imposed on directors by company law include those designed to ensure that proper information about the company is made available to persons who should be privy to such information.

Meetings

Every company must hold a general meeting within four months after its articles of incorporation are registered.

A company must also hold a general meeting every year. At least seven days' notice in writing must be given, unless all the shareholders entitled to attend and vote agree to shorter notice. The business transacted at the general meeting is regulated by the company's bylaws and usually includes consideration of the company's accounts and the report of the directors, confirmation and declaration of dividends, and election of directors in place of those retiring. The Companies Act does not contain any specific requirements for accounts to be audited.                                                                                              

However, many companies include provisions in their bylaws relating to the annual audit of their financial statements and consequently the independent audit of financial statements is commonplace.

Other meetings of shareholders may be called by the company as necessary for specific purposes. Directors' meetings are held as necessary, for specific purposes, and are held in accordance with the procedures set but in the company's bylaws.

Dividends are to be paid out of accumulated realized profits only. A company may pay a dividend in a year in which it has made losses, if there is an accumulated profit from previous years in excess of such losses.

Every stockholder holding common shares has one vote in respect of each share held. Preferred shareholders normally have no voting rights unless such rights are specifically conferred by the bylaws. Two shareholders in the case of a private company, or three shareholders in the case of a public company, who are personally present constitute a quorum for holding a meeting. Issues are decided by a simple majority except where a special or an extraordinary resolution is to be passed when a 75 percent majority of those present is required.

Liquidation and receivership

The Companies Act lays down regulations for the liquidation of companies either by the Court or by a shareholders winding-up if the company is solvent or, in the case of an insolvent company, by a creditors winding-up. Regulations are also laid down regarding the appointment of receivers where endebtedness s secured over the property of a company.

Books and records                                                                                                                            

No specific mention is made in the Companies Act of the nature of books of account to be maintained, but there are provisions for the examination of the company's books by inspectors appointed by the Comptroller of Inland Revenue upon application of the required number of shareholders. A Company is required to keep a register of directors, shareholders and mortgages.

Statutory audit

The requirement for an audit is generally included in the bylaws. The Inland Revenue generally requires audited accounts.

Business

Except as noted below, every industry, manufacture, trade, business, and engagement in commercial activity of any kind, whether conducted by an  individual or a partnership, is classified as a business and must be registered under the Registration of Business Names Ordinance. Not included in this definition of business are corporations, the business of farming or fishing, the provision of services in the course of employment, and the practice of a profession.

Partnerships

A partnership needs to register under the  Registration of Business Names Ordinace. A foreign partner would require approval to act in Montserrat

Joint venture

In the same manner as for a partnership, a foreigner would require approval to participate in a joint venture in Montserrat

Branch of foreign corporation

All companies incorporated outside Montserrat, but which establish a business in Montserrat, are required to register certain information with the Registrar of Companies in accordance with the Companies Act. The information to be registered includes the following.

1. A certified copy of the charter, statutes or articles and bylaws of the company defining the constitution of  the company.

2. A list of the directors with particulars attached.

3. The names and addresses of one or more persons resident in Montserrat who are
     authorized to accept service of any legal processes or notices to be served on the company.

 4. A copy of the annual balance sheet and profit and loss account (income statement) of the company.

Sole proprietorship                                                                   

A foreign investor coming to Montserrat to set up a sole proprietorship would need a work permit. Once this permit has been obtained, the investor may set up in business.