November 2018 marks the 12th anniversary of the introduction of the 2006 Act company form in the Isle of Man. It has proved a successful change with many overseas investors operating through the Island now using the 2006 Act Company as their standard corporate form. The most recent statistics from the Companies Registry indicated a total of 9,576 active 2006 Act Companies as at 30 September 2018.
Whilst it is likely that the majority of these companies are owned by non-Isle of Man residents, we have seen an increase in the number of local Isle of Man resident businesses choosing to take advantage of the 2006 Act form.
Isle of Man Companies incorporated under the 2006 Companies Act have many advantages over those incorporated under the 1931 Act, but only a licensed TCSP such as Peregrine can incorporate such companies and provide the ongoing service of a registered agent.
A 2006 Act Company requires a minimum of only one director compared to a minimum of two for 1931 Act Companies. The 2006 Act contains specific provisions allowing resolutions to be passed and meetings of directors to be held electronically using communication means such as email, fax, telephone conferencing etc.
A 2006 Act company can be a single member company, there is no requirement in the 2006 Act for such companies to hold Annual General Meetings and the concept of ordinary, special or extraordinary resolutions are not recognised in the 2006 Act.
The obligations on companies to file documents with the Companies Registry recording matters such as changes in directors and shares are significantly reduced in comparison to 1931 Act Companies reducing the administrative burden for directors and those providing a company secretarial function.
The flexibility of the rules relating to share capital in the 2006 Act has been perhaps the main factor in their rising popularity from our experience. Under the 2006 Act shares may:
- Have preferential rights to distributions or to voting;
- Have an entitlement to participate in only certain company assets;
- Be redeemable, convertible, common or ordinary; and
- Be issued in any currency, in fractional units and with or without a par value.
Provided that the Solvency Test is satisfied (see below), shares may be redeemed or purchased out of the capital or profits of a 2006 Act Company. The procedure being much less onerous than for 1931 Act Companies.
Under the 2006 Act a “distribution” is essentially the transfer of company assets to or for the benefit of a member. This includes the payment of a dividend or repurchase of shares.
In order to make a “distribution” a 2006 Act Company must satisfy the Solvency Test required under the Act that states a company must immediately after the distribution:
- Be able to pay its debts as they fall due in the normal course of business; and
- The value of its assets must exceed the value of its liabilities.
Only 2006 Act Companies listed on a securities market or exchange are required to appoint an auditor.
It is possible not only to establish new 2006 Act Companies, but also to convert existing 1931 Act Companies into the more modern format. Peregrine can assist in both incorporation and conversion as well as providing the ongoing service of a registered agent in the Isle of Man. We will also remain at your disposal to provide ongoing advice as required in respect of the administration, accounting or management of your company.
Please contact us should you have any questions about using 2006 Act Companies so we can discuss if it is the right corporate form for your business.
Peregrine Corporate Services Limited is licensed by the Isle of Man Financial Services Authority.