Public service announcement: List with a BVICo!

One way in which BVI companies remain relevant and popular is as a vehicle for taking a company or group public on a stock market. Here, we have set out a reminder of some of the key reasons why a BVI listed company (ListCo) could be a good option if you are looking to go to market or redomicile an existing entity.

The BVI business company is known, trusted, and used around the world in a variety of contexts, with over 400,000 having been incorporated. As a listing vehicle it has a track record going back decades with many valuable precedents.

By incorporating your ListCo in the BVI, you gain access to a wide range of international capital markets. The jurisdiction is well-connected to major financial centres worldwide, facilitating the listing of your ListCo on reputable stock exchanges, which can attract a broader pool of potential investors and increase your chances of a successful capital raise.

BVI companies are currently listed and traded on stock exchanges throughout the world. In the US, well known examples currently include Capri Holdings (the holding company for Michael Kors) and Arcos Dorados (the master franchise holder for MacDonalds in Latin America), in the UK, many resources (mining) companies favour BVI vehicles, and Hong Kong listed Tiantong (one of China’s main canned food exporters) and Xinyi Energy (a major solar farm operator) are both BVI entities. The BVI business company is also one of the most used SPAC vehicles in the world.

Financial services has, for a long time, been at the heart of the BVI. Government and regulators have been keen to ensure regulation and legislation keeps pace with innovation. Close industry collaboration has been a feature of the BVI’s landscape and, along with other industry institutions, Harneys has played a key role in the jurisdiction’s development.

The BVI does not impose any additional regulatory burden on listed companies, when compared to private companies, instead trusting that the rules of the relevant stock exchange will ensure adequate investor protections.

The BVI legal system is based on English common law and the BVI has a well-established and business-friendly regulatory environment that is highly conducive to listed companies. The government of the BVI has tailored laws and regulations to attract offshore companies, offering stability and a supportive legal framework.

The BVI also has a court system which is highly experienced and efficient in dealing with a variety of company law disputes, including those involving publicly listed companies (such as Nam Tai, which you can read about here). The ultimate appeal is to the Judicial Committee of the Privy Council, which consists of senior judges from the UK (predominantly those who sit on the UK’s Supreme Court).

Compared to similar jurisdictions, a major benefit the BVI offers is flexibility in structuring, especially in drafting constitutional documents.

The BVI allows unparalleled tailoring of the memorandum and articles, which govern your ListCo, allowing for unique share classes and rights without the need to follow legislative prescribed concepts (such as share capital). There is no issue under BVI law with share rights such as enhanced voting classes which, although controversial with some investor groups, are very popular with founders, especially in the tech sector. The BVI also allows “poison pill” structures that protect against hostile takeovers.

This flexibility allows you to tailor your ListCo’s structure to meet your, and your investors’, specific needs.

As well as flexibility in structuring, the BVI’s focus on flexibility in a company’s constitutional documents allows for greater freedom with ongoing governance:

1. Special resolutions. Unlike other jurisdictions, the BVI has eliminated the distinction between ordinary and special resolutions, instead allowing companies the freedom to determine what matters should require more than majority approval, and to set the approval threshold for such matters at a level appropriate for the company, its investors, and where it’s listed.
2. Written resolutions. Similarly, there is no requirement for written resolutions to be unanimous, either at the board level or shareholder level. It’s not always appropriate to have board and general meetings and so this approach can make it a lot simpler to deal with administrative matters.
3. Dividend test. The BVI’s simple test for declaring dividends requires that the company’s assets exceed its liabilities and that it is able to pay its debts as they fall due, immediately before and following the distribution. This test doesn’t require the consideration of distributable reserves or “share capital”, as you find in other jurisdictions, which puts it in the hands of management to determine what the working capital needs of the company are and how much should be returned to investors.
4. Share reorganisation. As BVI companies are able to issue no par value shares, it is a lot easier to divide and consolidate shares as part of company reorganisations.
5. Electronic engagement. BVI corporate law is drafted such that it allows for companies to adapt as engagement with stakeholders change. ListCos are able to stipulate that new technologies be used for calling and holding board and shareholder meetings (eg, websites, NFTs, Zoom, virtual reality).

If you plan to list in the US, incorporating your ListCo offshore means that (if you meet certain criteria) you can take advantage of being a “foreign private issuer”, exempting you from compliance with certain laws and regulations of the US Securities and Exchange Commission (SEC) and certain regulations of Nasdaq. For example, you would be entitled to follow home country practice and not be required to:

• Obtain shareholder approval for the issuance of new securities (Nasdaq Listing Rule 5635)
• Comply with the regulatory regime for the solicitation of proxies (Nasdaq Listing Rule 5620(b))
• Maintain a majority of independent directors (Nasdaq Listing Rule 5605 (b)(2))

Other stock exchanges offer other similar advantages to attract foreign companies. In the UK, the Takeover Code does not apply to entities listed in the UK and incorporated offshore, allowing flexibility around exit options.

US foreign private issuer status (if obtained) also means you will not be subject to all disclosure requirements applicable to US ListCos. For example:

• Exemption from certain rules under the US Securities Exchange Act (Securities Act) regulating disclosure obligations and procedural requirements related to the solicitation of proxies, consents, or authorisations applicable to a security registered under the Securities Act
• Executive officers and directors will be exempt from the reporting of “short-swing” profit recovery provisions of s.16 of the Securities Act and related rules with respect to their purchases and sales of securities
• No requirement to file periodic reports and financial statements with the SEC as frequently or as promptly as US public companies
• Exemption from Regulation FD (Fair Disclosure) of the Securities Act, aimed at preventing issuers from making selective disclosures of material information

The BVI currently imposes no corporate income tax, capital gains tax, or inheritance tax, making it an ideal choice for businesses seeking to maximise their profitability.

Tax efficiency can be a crucial factor in enhancing your ListCo’s appeal to potential investors and positively impacting its valuation during the IPO process.

If you are considering listing either now or in the future, contact the authors for advice. Our lawyers have extensive experience in going to market and the ongoing operations of ListCos. With offices spanning the globe, we provide advice not only on BVI law but also in the legal frameworks of Cayman, Bermuda, Anguilla, Cyprus, Jersey*, and Luxembourg.

*Jersey legal services are provided through Harneys (Jersey) which is an independently owned and controlled Jersey law firm.