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We have prepared a note setting out some of the key differences that exist in relation to companies incorporated in Jersey compared to those incorporated in the UK under the Companies Act 2006. The differences highlighted are not an exhaustive list but are intended to provide a flavour of the flexibility with Jersey corporates.
Jersey is British Crown dependency located near the coast of Normandy, France. It was part of the Duchy of Normandy, whose dukes went on to become kings of England from 1066. After Normandy was lost by the kings of England in the 13th century, and the ducal title surrendered to France, Jersey and the other Channel Islands remained attached to the English crown.
Jersey is not part of the United Kingdom and is not fully part of the European Union but has a special relationship with it, notably being treated as within the European Community for the purposes of free trade in goods. It has a unique position regarding AIFMD, as it is first country that was approved as a third country, allowing Jersey funds to raise capital in the EEA.
As one of the Crown dependencies, Jersey is autonomous and self-governing, with its own independent legal, administrative and fiscal systems. The ultimate appellate court is the Privy Council. Jersey law has been influenced by several different legal traditions, in particular Norman customary law, English common law and modern French civil law.
With respect to corporates, the tax position can be summarised as follows:
• Income tax – This is based on the zero/ten basis, so charged on bodies corporate at 0%, with the exception of: locally regulated financial services businesses, which are subject to income tax at 10%; local utilities businesses, which are subject to income tax at 20%; and income specifically derived from Jersey property rentals or Jersey property development, which is subject to income tax at 20%.
• Capital Gains – Jersey does not impose capital gains tax or equivalent.
• Stamp taxes – Jersey does not impose stamp duty on the purchase of shares. LTT is levied on property purchases.
• VAT – Although Jersey does not have VAT, the Government of Jersey introduced a goods and services tax (GST) on 6 May 2008, which is charged at 5%.
The standard rate of personal income tax in Jersey is 20%, up to £625,000 then 1% thereafter.
3. Jersey Economy
The economy of Jersey is largely driven by international financial services and legal services, which accounted for 40.5% of total Gross Value Added in 2010 (the other key sectors being agriculture and tourism). The financial services are broadly divided into banking (largely deposit taking), trust and investment vehicles and investment funds. A few facts:
• The net asset value of regulated funds under administration is £345.7bn at Q4 2019.
• The total value of banking deposits held in Jersey is £142.9bn at Q4 2019.
• The value of total funds under investment management stood at £26.8bn at the end of Q4 2019.
4. Company formations
The principle legislation is the Companies (Jersey) Law 1991, which is based on the UK Companies Act 1985 but with a number of key deviations. The law provides that a Jersey company can be public or private companies which are:
1. limited by shares (having a par value or no par value);
2. a guarantee company;
3. an unlimited company (having a par value or no par value);
4. a limited life company (limited by time or the occurrence of specified events); or
5. a cell company.
A significant proportion of companies incorporated in Jersey are private limited liability companies with par value shares (i.e. each share has a nominal or ‘par’ value). This type of company is very similar to an English private limited company in its share structure.
The Jersey Companies Law also permits a limited liability company to be established with no par value shares. A no par value company issues shares which are expressed as having no nominal value, nor are they denominated in any currency, and the number of authorised no par value shares can be (but does not have to be) unlimited. Save for those distinctions, no par value shares have the same features as par value shares, with their rights set out in the Articles of Association. The proceeds from the issue of shares of a no par value company must be credited to a stated capital account. Capital paid up on each class of no par value shares is credited to a ‘stated capital account’ for that class, the importance of which is considered further below.
Jersey companies are used in a wide range of transactions, such as:
• Investing in property, securities and other assets;
• Acting as a group holding company;
• Holding and exploiting patents and copyrights; and
• Facilitating the collection of commissions and consultancy fees.
The establishment of any Jersey structure will require a locally based company or fund administrator who will be responsible for the formation, ongoing regulatory requirements and AML compliance.
5. Capital requirement
Before moving on to look at the Jersey position, it is worth considering the UK Position under the Companies Act 2006:
• Reduction of share capital – A public company may only reduce its share capital with the consent of the court. For private companies, a reduction of capital may also be carried out with the consent of its members by special resolution, supported by a solvency statement (see Chapter 10, Part 17, CA 2006), the form of which is as follows:
We, the directors named below (being all of the directors of the Company as at the date of this statement), make the following statement under section 643 of the CA 2006 for the purposes of section 642 of the CA 2006.
Having taken into account all of the Company’s liabilities (including any contingent or prospective liabilities), we have formed the opinion that:
As regards the Company’s situation as at the date of this statement, there is no ground on which the Company could then be found to be unable to pay (or otherwise discharge) its debts.
The Company will be able to pay (or otherwise discharge) its debts as they fall due during the year immediately following the date of this statement.
• Distributions – A company may only make distributions to its members out of distributable profits (section 830, CA 2006). Additionally, a public company may only make a distribution if:
o the amount of its net assets is not less than the aggregate of its called-up share capital and its undistributable reserves; and
o the distribution does not reduce the amount of those net assets to less than that aggregate.
• Redemption of shares – A public company may only redeem its own shares out of distributable profits or the proceeds of a fresh issue of shares made for the purpose of financing the redemption. A private company may also redeem its shares out of capital.
• Buyback of shares – A public company may only purchase its own shares out of distributable profits or the proceeds of a fresh issue of shares made for the purpose of financing the purchase (section 692(2), CA 2006). A private company may also purchase its shares out of capital or with cash up to the value in any financial year of the lower of £15,000 and 5% of its share capital in accordance with Chapter 5 of Part 18 of the CA 2006.
• Financial assistance – Except in limited circumstances, a public company may not provide financial assistance for the purpose of acquiring its own shares (section 678(1), CA 2006).
In Jersey, the Companies Law previously included provisions which implemented the maintenance of capital rule. This rule required a company to maintain its paid up share capital for the benefit of its creditors and limited the sources from which dividends and buybacks could be paid to shareholders. However, this has now been relaxed in favour of cash flow solvency tests. In summary, the position is as follows:
• Reducing capital accounts – The law allows a company to reduce its capital accounts in anyway by passing a special resolution and the directors approving a solvency statement in a similar form to that set out for distributions below. So it may, for example:
o extinguish or reduce any amount unpaid on its shares;
o reduce a capital account to reflect a loss; or
o return excess capital to shareholders.
• Dividends – The law allows dividends to be paid from a far wider range of sources than in the UK. A distribution may be debited to any account of the company other than (if it is a par value company) its nominal capital account, or (if applicable) any capital redemption reserve. A company may therefore pay a distribution from its share premium account if it is a par value company. If it is a no par value company, stated capital accounts are treated as share premium under the Jersey Companies Law and, in the same way as share premium, stated capital is distributable (subject, in most cases, to the directors who authorise a distribution making a statutory solvency statement).
The Law states that a company may only make a distribution if the directors who authorise it make a statement that they have formed the opinion that:
immediately following the date on which the distribution is proposed to be made, the company will be able to discharge its liabilities as they fall due; and having regard to: (1) the prospects of the company and to the intentions of the directors with respect to the management of the company’s business; and (2) the amount and character of the financial resources that will in their view be available to the company, the company will be able to:
(A) continue to carry on business; and
(B) discharge its liabilities as they fall due,
until the first to occur of the expiry of the period of 12 months immediately following the date on which the distribution is proposed to be made, or the company is wound up on a solvent basis.
• Buybacks and redemptions – The redemption or re-purchase of fully paid shares or depositary certificates in respect of shares of par or no par value companies is permitted from any source provided the directors make the required solvency statements (in a similar form to that described above for dividends). A buyback will require a special resolution of the shareholders.
• Financial Assistance – The prohibition has been abolished in Jersey for all companies.
The flexibility with regards to the use of share capital afforded to Jersey companies means that they are ideal as part of a group structure, as an investment holding company or acting as a carried interest vehicle.
6. Cell Companies
A particular structure that exists amongst offshore jurisdiction is the cell company. This innovative structure allows multiple cells that are each self contained. This is ideal for investment funds where certain assets can be separately funded, by different investors if desired. There are two forms of cell company in Jersey:
• Protected Cell Companies – The key features of the PCC are based upon the model established in Guernsey and the Isle of Man with certain developments unique to Jersey. The PCC is a single legal entity that attributes its assets and liabilities either to the protected cell company itself or to the individual cells it creates. The assets and liabilities of the protected cell company and those attributed to its cells are “ring-fenced” from each other. Although each cell does not have separate legal identity, it is treated as such and each cell has a separate memorandum and articles, its own members and can be used to carry out separate business activities. The cells and the cell company may have the same directors, but there is no requirement, so directors of a cell can be removed and replaced in the manner provided for in the cell’s articles of association
• Incorporated Cell Companies – The ICC is a further development of the PCC concept. Each cell of an ICC is itself an individual incorporated company which can hold assets and incur liabilities in its own name without contamination of or by the assets and liabilities of another cell. The rights of the shareholders in such cells are fettered in those cells, although individual companies cannot act independently of the incorporated cell company that created them. We expect that the combination of the umbrella of the incorporated cell company and the separate legal personality of each individual cell will prove extremely attractive to investors seeking segregation of assets and liabilities within one vehicle whilst allowing those jurisdictions unfamiliar with the PCC concept to recognise and respect such segregation.
A special resolution is required to amend the Articles, commence a summary winding up and for certain other purposes. This requires a two-thirds’ majority, or such higher majority required by the Articles. Can also be passed by written resolution capable of being passed by majority stipulated in Articles.
8. Pre-emption rights
The Jersey Companies Law does not include any statutory pre-emption rights on the issue of shares. Consequentially prima facie the issue of shares by a Jersey company falls within the power of its directors, although it is common for public listed companies and companies held by multiple shareholders that the company’s articles of association (or in the case of a private company, a shareholder agreement) include pre-emption rights or some other restrictions on such power.
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