A Q&A guide to establishing a business in Bermuda.
This Q&A gives an overview of the key issues in establishing a business in Bermuda, including an introduction to the legal system; the available business vehicles and their applicable formalities; corporate governance structures and requirements; foreign investment incentives and restrictions; currency regulations; and tax and employment issues.
1. What is the legal system in your jurisdiction based on (for example, civil law, common law or a mixture of both)?
Bermuda is a United Kingdom Overseas Territory. Bermuda’s constitutional framework is such that the UK Parliament has delegated full legislative power to Bermuda’s local parliament, with the exception of defence and foreign affairs.
The legal framework of Bermuda is based on common law principles with English common law having persuasive force.
Most matters are governed by statutes passed by the Bermuda Parliament, or by statutory instruments (as a form of delegated legislation) made by the relevant government minister acting under authority granted to the minister by the relevant statute.
Bermuda has its own court system. Most company and commercial matters are heard in the Bermuda Supreme Court, from which there lies an appeal to the Bermuda Court of Appeal. Judgments from the Bermuda Court of Appeal can be appealed to the Judicial Committee of the Privy Council in the UK.
2. What are the main forms of business vehicle used in your jurisdiction? What are the advantages and disadvantages of each vehicle?
There are three main business vehicles:
- Companies limited by shares (companies).
- Limited liability companies (LLCs).
Under Bermuda law it is possible for each of these vehicles to convert to a vehicle of another type after original incorporation/formation.
Companies limited by shares
Companies limited by shares predominate in Bermuda as the business vehicle of choice. They are governed by the Bermuda Companies Act 1981 (Companies Act). The Companies Act is derived from the UK Companies Act 1948, but has been subject to numerous amendments to address the evolving requirements of the international business community. The legislative dynamic in Bermuda is such that the Companies Act is seen as a jurisdictional asset and reflects years of collaboration between government, local practitioners and international business.
The key advantage of a company is that a shareholder’s liability is limited to the amount unpaid on their shares. The company vehicle is therefore a method to engage in transactions that would otherwise expose a shareholder to liability. A company limited by shares is also an efficient vehicle for pooling capital, especially in cases where investors seek to negotiate different commercial rights among themselves. A Bermuda company is permitted a great deal of flexibility in determining how the rights of different members or shareholders are regulated because a company’s constitutional documents can be tailored to build in different economic and/or voting rights among shareholders. Specialised legislative regimes also exist for licensing companies limited by shares as investment funds or insurers.
Bermuda companies are managed primarily by their boards of directors, who are elected by shareholders at an annual general meeting. The Bermuda model of corporate governance is very board-centric and, as a result, unless shareholders enshrine special protections in a company’s constitutional documents, shareholders may be afforded fewer protections than they are familiar with under comparative legal systems.
This article was first published in Thomson Reuters Practical Law.