Structure of business entities

Home About the Isle of Man Structure of business entities

Summary


The following are the principal forms of business entity through which assets may be held or business conducted:

  • 1931-2004 Act companies
  • 2006 Act companies
  • Non Isle of Man Incorporated Companies
  • Foreign Companies
  • Partnerships and Limited Partnerships
  • Limited Liability Companies ("LLC")
  • Sole Proprietors
  • Trusts
  • Foundations

From the point of view of Isle of Man law there are no restrictions on non-residents or residents acquiring or holding interests in Isle of Man companies, although acquisition by residents may result in the loss of tax advantages in certain cases. depending on the Isle of Man tax regime in operation at the time.

There are no restrictions on residents acquiring or holding interests in foreign companies. No government permission is needed in either case.

There is no restriction on the acquisition of Isle of Man situated real property except that it may not be owned, directly or indirectly, by a purpose trust.

Special government incentives exist in relation to the production of films and television programmes in the Isle of Man, manufacturing services and e-business.

Isle of Man-incorporated companies which are publicly quoted are traded on the London Stock exchange; there is no separate stock exchange.

 

Companies


Companies incorporated in the Isle of Man are governed by the Companies Acts and/or various other related legislation. These also regulate non-Isle of Man companies and corporations with a place of business in the Island. Companies are the usual form of business entity either in the Island or for conducting local and international business from the Island.

A zero per cent general corporate tax rate is applied to Isle of Man resident companies with non-Island beneficial owners.

The liability of members of a company may be limited or unlimited but it is extremely unusual for an unlimited company to be used in offshore business. The company may be limited by shares; limited by guarantee; limited by guarantee with a share capital; unlimited with shares; or unlimited without shares.

An LLC, which has some of the characteristics of a company and some of the characteristics of a partnership, may be established; it may have a limited permitted life. Such a company may be used (inter alia) to secure tax benefits in certain jurisdictions.

A company may be private (the most common form for offshore business, except for collective investment schemes) or public, in which case it may offer shares to the public.

 

Non Isle of Man Companies


Non Isle of Man companies with a place of business in the Isle of Man must register with the Registrar of Companies.

 

Statutory Requirements


The statutory requirements for all companies formed under existing legislation include:

  • maintaining registers of members, directors, secretaries or registered agent and charges;
  • maintaining accounting records and minutes of meetings
  • maintaining a registered office or place of business in the Island
  • filing an annual return and paying the statutory fee
  • filing notices of changes in various matters, including directors, secretary, registered agent and registered office.

The 2006 Act companies have less onerous filing requirements, and are predominantly used for offshore structures. The more traditional 1931-2004 Act companies remain the norm for locally operated trading businesses.

All companies limited by share or guarantee are required to make a return of the appointment of directors and company secretary (except NMVs), and any changes, within a month. The initial subscribing shareholders are shown on the memorandum and articles of association. Changes of members (other than for limited liability companies) are not filed except as disclosed in the annual return.

A company must hold an annual meeting of members (not applicable to the 2006 Act companies).

The register of members, which must be kept in the Isle of Man, is open to inspection by the members of the company and the general public (on payment of a reasonable fee) but the register of charges is open to inspection, free of charge, by all creditors and members of the Company. All records held by the Registrar of Companies are open to inspection by members of the public on payment of the appropriate fee.

The annual return includes details of shareholders and directors. Confidentiality as to membership can be secured by the use of nominee shareholders. All companies are required to prepare annual accounts. There is no provision for the accounts of a private company to be filed; however, the annual return of a company must be accompanied by a declaration as to whether or not the company has complied with various legislative provisions relating to accounts. The accounts of a public company must be filed at the Companies Registry.

 

Formation Procedures


One or more persons subscribe their names to the Memorandum and Articles of Association as the first members. The Memorandum sets out the name of the company, the jurisdiction of situation of the registered office, the authorised share capital (in the case of a company limited by shares) or the liability of the guarantee members (in the case of a company limited by guarantee) or both (in the case of a hybrid company) and the fact that the liability of the members is limited. The Articles of Association set out the procedure for the day to day running of the company. The proposed name is usually first cleared as available and acceptable with the Registrar of Companies and usually reserved. The Memorandum and Articles and the statement of first directors, secretary (or registered agent) and registered office, together with the appropriate fees are then submitted to the Registrar, who registers the Company. A certificate of incorporation is issued after which the company is legally in existence. The required documents and procedures are slightly different for a limited liability company.

 

Audit


Certain companies, other than a public company, a corporate service provider, a banking or insurance company and a company authorised to carry on Investment Business, may, if permitted by their articles, resolve not to appoint an auditor if the companies comply with the requirements of regulations. A company may be exempt from audit if it meets 2 of the following 3 criteria:

  • its turnover in a financial year does not exceed £5.6 million
  • the balance sheet does not exceed £2.8m at any time during that year
  • it employs no more than 50 persons at any time during the year.

 

Minority Protection


In spite of the fact that the activities of a company are governed by the majority principle (unless the constitutional documents provide otherwise) the Companies Acts contain compulsory provisions to protect minority shareholders.

 

Winding Up


Winding up may be either:

  • by the court, in a variety of circumstances, including company insolvency, or
  • voluntarily, principally by a resolution of the members.

There is a statutory framework of responsibilities and a timetable in relation to both methods of winding up.

 

Other Entities

 

Limited Partnerships, Partnerships and Sole Proprietorships


Ordinary partnerships (and sole proprietorships) may be formed whereby all partners are (or the sole owner is) liable without limit for the debts of the partnership (or business) not satisfied by the partnership (or business) assets. There is a trend away from this for professional firms in the Island.

Limited partnerships may also be formed. A limited partnership consists of at least one general partner whose liabilities for the debts is unlimited and other, limited, partners whose liability is limited to their agreed capital contribution.

 

Limited Liability Company


The limited liability company has a corporate personality distinct from that of its members, but its articles of organisation may provide that it shall have much of the flexibility of a partnership.

The liability of its members, as such, is limited to the extent of their agreed contribution. In many respects it can operate as an incorporated partnership.

 

Trusts


Trusts have a centuries-long history in the Isle of Man. The law in this area embodies the main principles of English trust law supplemented or varied by legislation. It is most unusual for a trust to engage directly in business; however, a company engaged in business may be owned by a trust. A purpose trust may be used for asset-holding activities.

 

Foundations


Isle of Man Foundations are an alternative to Trusts and can be used for private wealth, charitable and commercial purposes. Please refer to our article on “Foundations in the Isle of Man” if you require further information.

 

 

Business Registration


A business (other than an individual or a company carrying on business in the individual’s or the company’s name, as the case may be) carrying on business in the Island must register its business name.

 

Banks, Collective Investment Schemes, Insurance Companies and Pension Providers

 

Banks


The Financial Services Authority determines applications for banking licences and supervises the activities of banks.

Two kinds of banks may be licensed:

  • ‘Domestic banking institutions’, which must (under present policy), be subsidiaries or branches of banks set up in other jurisdictions
  • ‘Offshore managed banks’ – where a domestic banking institution is appointed the bank’s manager in the Isle of Man.

There is a depositors’ protection scheme for the compensation of depositors in Isle of Man banks.

The scope of this summary precludes giving detailed information on the application for a banking licence. To maintain the Island’s high reputation in this area, the licensing procedure is carried out thoroughly and quarterly returns and audited accounts are required to be submitted to the Financial Services Authority.

 

Collective Investment Schemes


Collective Investment Schemes (and other investment businesses) are also supervised by the Financial Services Authority. There are regulations relating to the constitution and management of schemes, the powers and duties of the operator and trustee and the rights and obligations of the participants.

There are, broadly, five classes of schemes:

  • An ‘authorised’ scheme
  • An ‘international’ scheme – which may not be promoted or advertised in the Isle of Man
  • An ‘international restricted’ scheme – which may or may nor be promoted or advertised in the Isle of Man, which has fewer than fifty participants and which is not open to the public
  • A ‘professional investor fund’ – aimed at professional investors or ‘high net worth ’ individuals
  • An ‘experienced investor fund’ – aimed at experienced investors but lacking some of the restrictions applying to a professional investor fund.

Insurance Companies


The insurance market is carefully regulated and consists of the local market for normal insurance risks and the offshore captive insurance and reinsurance market. Insurance activities are supervised by the Insurance and Pensions Authority. Detailed information on the making of an application to carry on insurance business is outside the scope of this booklet. The details of requirements for applications for licences vary slightly according to the nature of the business sought to be carried out and a licence specifies the authorized class(es) of business.

Quarterly returns and audited accounts must be provided to the Insurance Supervisor. A statutory policyholders’ compensation scheme has been established.

 

Pension Providers


A ‘light touch’ regulatory environment has been created in relation to the establishment and operation of international occupational pension schemes. The regulation focuses on the trustee and the manager rather than the schemes themselves.

Key points regarding Isle of Man pension schemes are as follows:

  • Tax relief on contributions is available up to 100% of an individual’s net relevant earnings subject to a £300,000 annual allowance.
  • It is possible to contribute to more than one pension scheme at the same time.
  • Up to 30% of the fund value can be taken as a tax free lump sum.
  • There is no requirement to purchase an annuity.
  • It is possible to invest in a wide range of investments.

More information about Companies

More information about Trusts

More information about Banking and finance.

More information about Important legislation and agreements.