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INFORMATION and PROCEDURAL MEMORANDUM

With respect to the INCORPORATION and ADMINISTRATION of BERMUDA EXEMPTED COMPANIES

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Prepared by
Marshall Diel & Myers Limited
prepared at 15 October 2005
Last Revised November 2007

1 Introduction and Definitions

1.01

Most Bermuda companies are incorporated by registration under the Companies Act 1981, as amended (“the Act”). A relatively small number of companies are incorporated by a private Act of Parliament.

1.02

The Act provides for the following two principal categories of Bermuda companies:

(1) “local companies” which are permitted to carry on business in Bermuda (i.e. to trade with persons resident in Bermuda) and elsewhere in the world. At least 60% of the voting rights and directorships of a “local company” must be held by Bermudians; and

(2) “exempted companies” which are permitted to carry on business from but not within Bermuda (i.e. they are not permitted to trade with persons resident or carrying on business in Bermuda). An “exempted company” may have a physical presence in Bermuda (i.e. an office, employees, etc.) but its business activities must be conducted with entities located outside of Bermuda. Such a company is “exempted” from the rule requiring 60% of the voting rights and directorships to be held by Bermudians. Any part or all of the share capital of an “exempted company” may be owned by non-Bermudians.

1.03

A Bermuda company’s principal documents are its:

Certificate of Incorporation, a certificate issued by the office of the Registrar of Companies, which confirms the company’s name, date of incorporation and corporation number.
Memorandum of Association, which details its authorsed capital and corporate purposes;
Bye-laws, which outline the general procedural rules for administering its affairs; and

2 Incorporation Procedure – Exempted Companies

2.01

An application is made to the Registrar of Companies (“the Registrar”) to reserve a company name. A name reservation is usually approved or rejected within 48 hours. A name reservation is effective for 90 days and may be renewed once for a further 90 days.

2.02

After the name has been reserved, an application is made to the Bermuda Monetary Authority (“the BMA”) acting on behalf of the Controller of Foreign Exchange (“the Controller”) for permission to issue shares to the proposed beneficial owners. The application must be accompanied by a draft of the proposed company’s Memorandum of Association, the Government fee for the year of incorporation and information about the beneficial owners as outlined in paragraph 4.05 within. The names of the beneficial owners of the company are kept in the BMA’s confidential file for the company. That file is not available to the public.

2.03

The consent of the Minister of Finance (“the Minister”) to the incorporation of the company will be required only if the proposed company’s objects (i.e. its business purposes) include the provision of:

(a) financial services to the public (e.g. banking business, deposit taking business, trust business, insurance business, custody and administration of securities) ;or

(b) professional services to the public (.e.g. law, medicine, dentistry, architecture, accounting).

2.04

When the BMA’s permission (and the consent of the Minister, if required) has been given, the BMA will notify the Registrar who will register (i.e. incorporate) the company. The effective date of incorporation is generally the date on which the required notice is given by the BMA to the Registrar.

2.05

After the Certificate of Incorporation is received from the Registrar, an application is made to the Minister pursuant to The Exempted Undertakings Tax Protection Act, 1966 for a Tax Exemption Certificate. The Certificate confirms that, if taxation of income, capital gains or profits is adopted in Bermuda, the company will be exempt from such taxation until 28 March 2016 (which is the 50th anniversary of the date on which the legislation was first passed).

2.06

We then purchase the corporate books, records and company seal and prepare the Bye-laws and resolutions required for the due organisation of the company.

3 Time Required for Incorporation

3.01

Once all of the relevant information has been provided to us, it usually takes 7 to 10 days to incorporate and organize a Bermuda exempted company.

4 Miscellaneous Statutory provisions

4.01 Company name

(1) No company is permitted to have a name which:

(a) is identical to that of a Bermuda company already in existence or which so nearly resembles the name of a Bermuda company in existence that the use of the name is likely to deceive;

(b) contains the words “Chamber of Commerce”, “chartered”, “municipal”, or any other word that, in the opinion of the Registrar of Companies, suggests, or is likely to suggest, patronage of Her Majesty or any member of the Royal Family, a connection with Her Majesty’s Government or department thereof, or a connection with a municipality, public board, local authority, or any society or body incorporated by Royal Charter; or

(2) The last word in the name of a Bermuda company must be “Limited” or “Ltd.” [S.7(1)(a)]

(3) Since there are many Bermuda companies in existence, it is important that a company name be distinctive. A name made up from portions of other words or names (e.g. Texaco) may have a better chance of being available than a name which is more generic. We suggest that you provide us with three or four alternative names, listed in your order of preference.

(4) An exempted company must have a primary name in Roman script, but may have a secondary name in a script other than Roman script, subject to certain conditions.

4.02 Objects and powers

Effective 29 December, 2006, a company’s Memorandum of Association may provide that its the objects are unrestricted and that it has the capacity, rights, powers and privileges of a natural person, subject to any statutory provision to the contrary [S.7(1)(b)]. Certain activities are expressly prohibited by statute (e.g. Trafficking in armaments; operating lotteries or gaming facilities; production or importation of controlled drugs) [S 4B and Tenth Schedule]. Other activities are restricted and may not be carried on without the consent of the Minister of Finance (e.g. providing financial or professional services to the public as set out in paragraph 2.03 above) [S4A and Ninth Schedule]. Such activities generally require a licence and regulation by the BMA. [Note until 20 December 2006, Bermuda law required that a company’s Memorandum of Association was permitted to have only certain specified objects and powers.]

4.03 Authorised Capital

Each exempted company must have an authorised capital of a stated amount (e.g. US$50,000) The capital must be divided into shares having a par value denominated a particular currency, other than Bermuda dollars (e.g. divided into 50,000 shares of US$1.00 each; or divided into 5,000,000 shares of US$0.01 each) [S.7(2)]. Shares without par value are not permitted under Bermuda law. Various classes of shares may be authorised in the Memorandum or the Bye-Laws. A company may not sell more shares than the number stated in the Memorandum of Association without first advising the Registrar that it has increased its authorised capital. Effective 29 December, 2006, there is no minimum capital that an exempted company must issue. [Until December 29, 2006, an exempted company was required to have a minimum authorised and issued capital US$12,000, or equivalent in any other currency other than Bermuda dollars.]

In the absence of special circumstances, because of the fee structure for company fees [see paragraph 5.02 of this Memorandum], we generally recommend that a company be incorporated with authorised capital not exceeding US$12,000 divided into shares of US$1.00 or US$0.01 each. If the company requires a greater authorised capital, we generally recommend incorporating with an authorised capital of US$12,000 and increasing the authorised capital shortly thereafter. As noted in paragraph 5.02, the annual government fee for the first year is based on the company’s authorised capital at the time of incorporation. Increases in authorised capital do not affect the amount of the government fee until the following year.

4.04 Issued Capital

A company’s “issued capital” is the capital (or shares) issued to its shareholders. An exempted company may have one or more shareholders. In the absence of special circumstances, we recommend that a company allot and issue 100 shares to its shareholders in appropriate proportions, leaving room for the issue of additional shares at a later date without amending the company’s authorised capital.

4.05 Issue and transfer of shares

Individuals, trusts, partnerships, corporations or other legal entities may be shareholders of an exempted company. However, no shares, debentures, options or warrants of a Bermuda exempted company may be issued or transferred without the prior consent of the BMA, acting on behalf of the Controller [S.12 and S.13 of the Exchange Control Regulations 1973, as amended]. Please note that a shareholder is NOT PERMITTED to transfer any shares of an exempted company to anyone without the prior approval of the BMA, acting on behalf of the Controller.

Before granting its approval to the issue or transfer of the company’s shares, the Controller will require:

(a) each individual applicant who will own 5% or more of the shares of the company to provide a Personal Declaration (provided separately); and

(b) each corporate applicant to provide copies of its most recent financial statements and a Personal Declaration from each of its individual shareholders who owns 5% or more of its shares.

4.06 Due Diligence – “Know Your Client”

In order that we may fulfill our duty to “know our clients”, prior to proceeding with the incorporation of an exempted company, we will require that each beneficial owner:

(1) who is an individual provide to us (a) photo identification (e.g. passport, driver’s licence); (b) a bank or professional reference; and (c) a resumé or curriculum vitae. Each reference should confirm a relationship has existed for not less than three years. A bank reference should confirm a satisfactory banking relationship but need not give financial particulars;

(2) that is a privately-owned corporation, provide to us (a) details of the corporation’s share ownership; (b) a description of the business of the corporation, (c) the most recent financial statements for the corporation; (d) and photo identification and references for the individual shareholders of the corporation as outlined above;

(3) that is a public corporation provide to us a copy of its most recent Annual Report to Shareholders.

Bermuda’s banks and financial institutions will require similar information if the company proposes to open bank or investment accounts in Bermuda.

4.07 Payment for shares

Shares may be issued “subject to call”. Although we recommend that the issued capital be fully paid up, it is not necessary that it be so. A shareholder who owns shares “subject to call” is personally liable to the company to pay the amount “subject to call” on demand by the company.

4.08 Share Certificates

We recommend that original share certificates be held at the registered office with the company’s records to minimize risk of loss. In that event, each registered shareholder will receive a photocopy of his, her or its share certificate. However, a registered shareholders is entitled to hold and retain the share certificate, if preferred.

4.09 Register of Members/Share Register

Each company must maintain a Register of Members (“the Register”) containing the following information in respect of each shareholder: (a) name, (b) address, (c) nationality, (d) number of shares held, (e) share certificate number, (e) amount paid up on the shares, (f) the date on which each shareholder was entered on the Register (g) the date (if applicable) on which each ceased to be a member. [S.65] A person whose name is contained in the Register is referred to a “registered shareholder” or “registered member”. Bearer shares are not permitted under Bermuda law.

The Register must be kept at the company’s registered office [S.65(2)] is available for public inspection [S.66(1)]. If anonymity is required, shares may be held by a nominee or trustee. Nominee shareholders are frequently used to maintain shareholder confidentiality from all but the BMA and the Controller and the company’s officers and directors, unless a Bermuda Court orders that such information be disclosed.

Charter Company Limited, a nominee company owned by Marshall Diel & Myers Limited, may act as nominee shareholder, if you wish. In that event, the share certificate will be registered in the name of Charter Company Limited and it will provide the beneficial owner with: (a) a copy of the registered share certificate; and (b) an Acknowledgement or Declaration confirming that it holds the share certificate as nominee.

4.10 Directors

Each exempted company must have at least 2 directors. Directors must be individuals and may be resident anywhere in the world. Corporate directors are not permitted. A Director is not require to hold shares in the Company. Alternate directors may be appointed to exercise the powers conferred upon directors who are unable (perhaps through absence or illness) to attend directors’ meetings or sign written resolutions. [S.91]

Individuals who are resident in Bermuda must hold the following positions in the company:

(1) two directors; or

(2) one director and one secretary; or

(3) one secretary and one resident representative; or

(4) in the case of a company the shares of which are listed on an approved stock exchange, one resident representative [S.130(1)].

If Marshall Diel & Myers Limited or any of its affiliates provide officers or directors for the company, it may require the company to obtain and maintain “Directors and Officers” liability cover of an acceptable amount.

A resident representative is entitled to receive notice of, and to attend and be heard at, all meetings of directors and shareholders and must act as agent for service of process in Bermuda. The resident representative has a statutory duty to inform the Registrar of Companies if the company commits any material breach of any provisions of the Companies Act, 1981, as amended, or issues or approves the transfer of shares in contravention of any applicable law or regulation [S.130(5) and (6)].

4.11 Register of Directors and Officers

Each company must maintain a Register of Directors and Officers (“the D&O Register”) containing the following information in respect of each director and officer: (a) name, (b) address, and (c) the office, if any, held. The D&O Register must be kept at the company’s registered office is available for public inspection.

4.12 Officers

Each Bermuda company is required to have a Secretary [S.92(1)] and may have such other officers as the directors consider appropriate [S 91(4) Officers may be, but are not required to be, directors [S91(4) and S. 92(1)]:

We generally provides the company secretary and an assistant-secretary.

4.13 Registered office

Each exempted company must have a registered office in Bermuda [S.62(1)]. We routinely provide the registered office for companies under our administration, unless circumstances dictate otherwise.

4.14 Documents and property to be maintained at the registered office

The following must be kept at the company’s registered office:

(a) minutes of all meetings of members, directors and committees of directors [S.81];

(b) a register of members containing, among other things, the name and address of each member [S.65];

(d) records of account, showing particulars of all funds received and disbursed by the company, all sales and purchases of goods by the company, and the assets and liabilities of the company. [These may be kept at elsewhere, if the directors prefer. However, if they are not kept in Bermuda, quarterly statements must be kept at an office of the company in Bermuda [S.83].

4.15 Bye-laws

Unless requested otherwise, the Company’s Bye-Laws will provide, inter alia:

(a) for at least 21 days notice of Annual General Meeting or Special General Meeting of the Shareholders;

(b) that a quorum for a meeting of the shareholders is 1 or more persons present in person or by proxy holding 51% of the issued voting shares of the company;

(d) that directors meetings may be held by telephone and that a director who participates in a telephone meeting will be deemed to be present in person at the meeting;

(e) shareholders may conduct business by written resolution signed by all shareholders;

(f) directors may conduct business by written resolution signed by all directors.

4.16 Annual General Meetings

Every Bermuda company must have at least one general meeting in each calendar year. Such a meeting is referred to as the “annual general meeting” or “AGM” [S.71]. Meetings may be held anywhere in the world. The business conducted at an AGM usually includes review and approval, if appropriate, of the company’s financial statements, the appointment (or waiver of appointment) of an auditor for the ensuing year, and the election of directors.

Resolutions in writing signed by all members may take the place of a meeting without notice requirements [S77A]

4.17 Financial Year End/ Audit/ Auditors and Accountants

A company may choose any date as its financial year end. The financial year end may be changed at any time by resolution of the directors.

Each company must present audited financial statements to its members at a general meeting (usually the annual general meeting) unless all members and all directors agree that no such financial statements need to be presented in respect of a particular year [S.84 and S.88]. Such agreement lapses at the end of each fiscal year. but may be renewed from year to year thereafter.

If the beneficial owners wish to waive the audit requirements, they may still wish to appoint a person as the company’s accountant, but they are not required to do so.

4.18 Banking

An exempted company may hold bank accounts in any currency, other than Bermuda dollars. Signing authority is usually conferred on any two Directors signing jointly. Individuals who are not directors may be authorised signatories, if desired. As noted in paragraph 4.06, Bermuda banks require photo identification and bank references for each director (whether or not he or she will be a signing authority) and for each signing officer who is not a director. If the company requires bank accounts outside Bermuda, please provide necessary account opening forms, signature cards, mandates and instructions.

4.19 Documents available for public inspection

The following documents are available for public inspection in respect of each Bermuda company:

(a) Share Register [S.65(2)

(b) Directors’ Register [S.92A(3)]

(d) Memorandum of Association

(e) All amendments to the Memorandum of Association

(f) Notices of Charge of the assets of the company [S.55(7)].

4.20 Company Seal

A company may have a common seal, but is not required to do so [S 23(3)]. If a common seal is affixed to a document, it should be attested by a director, the secretary or an assistant-secretary, a person expressly authorised by the directors to affix the seal, or as provided in the Bye-Laws.[S.23)4)]

Since many financial institutions are accustomed to seeing a seal imprint on company documents, we recommend that exempted companies have common seals, even if they are rarely used

5 Costs

5.01 Incorporation Fees and Disbursements

(a) Incorporation Fees

Our fees for incorporating a Bermuda exempted company are estimated at, and will generally not exceed, US$3,000 unless some original drafting is required for the company’s objects, its authorised capital, or to meet a special need. Our fee does not include charges relating to the planning of the appropriate structure. Any such charges will, unless otherwise agreed, be based on the time spent.

(b) Disbursements

Our Disbursements are estimated as follows:

Government application fee: 227.00

Certificate of Incorporation fee 67.00

Certificate of Tax Assurance fee 132.00

Minute book and company seal 125.00

Copying, long distance, facsimile and courier charges estimated at 99.00

Total 650.00

Duplicate seals cost an additional US$50 each.

5.02 Government Fees

The amount of the government fee is based on the amount of the company’s “assessable capital”. A company’s “assessable capital” is the sum of its authorized share capital and its “share premium account”. Its “share premium account” is the amount by which the aggregate of all payments made to the company for the issue of its shares exceeds the par value of such shares [S. 131(1)(a)(iii)].

In the year of incorporation, a company’s assessable capital is calculated as at a date of incorporation [S.131(1)(a)(iii)(aa) or (bb)]. In all subsequent years, it is calculated as at August 31 preceding the due date of the government fee [S.131(1)(a)(iii)(cc)].

The amount of the government fee payable is set out in the Fifth Schedule to the Act. The Fifth Schedule (revised as at 1 April 2007), is reproduced in part, as follows:

Assessable Capital Fee Payable

12,000 1,870

12,001 to 120,000 3,820 120,000 to 1,200,000 5,890 1,200,001 to 12,000,000 7,850 12,000,001 to 100,000,000 9,815 100,000,001 to 500,000,000 17,530 500,000,000 or more 29,220 If an exempted company is incorporated on or between September 1 and December 31 in any year, the Government fee payable for the year of incorporation is reduced to one half of the fee otherwise payable.[S.131(1)(b)]

The government fee for the year of incorporation, is payable at the time of incorporation. In each subsequent year of an exempted company’s existence, the government fee is payable on or before January 31 of such year [S.131(1)] However, we require funds no later than January 15 in each year to ensure sufficient time to confirm receipt of funds, allow cheques to clear, and allow time to prepare and deliver funds to the Registrar of Companies.

5.03 Administration (annual charges)

Corporate secretarial and administration services for companies which we incorporate are generally provided by Charter Corporate Services Limited (“Charter”), a corporate services company owned by the firm of Marshall Diel & Myers Limited. It charges an administration fee of $3,500 per annum which is payable in advance. During the first year of administration by Charter, the fee is prorated on a monthly basis. The administration fee includes:

provision of the registered office;
provision of secretary and assistant secretaries, and resident representative, as required, and assuming the responsibilities incidental to those offices;
preparing pro forma annual minutes or written resolutions; and
preparing and filing the Annual Declaration on which the company’s annual government fees are based.

If directors are required, Charter will provide them for a fee of $750.00 per director, per year.

The company administration fee for the year of incorporation is payable at the time of incorporation.. In each subsequent year of an exempted company’s existence, the company administration t fee is payable on or before January 31 of such year.

In the absence of exceptional circumstances, Charter will not pay the government fee until it has received funds for both the government fees and its company administration fees for such year.

Invoice are payable within 30 days of issue. Interest will be charged on unpaid amounts from the 30th day following the date of issue of the invoice until paid in full at the rate of 10 per cent per annum, calculated and compounded monthly. Funds received are applied, firstly, against our outstanding fees and disbursements and, secondly, in payment of the annual government fee.

We require one or more of the beneficial owners to complete our Corporate Administration Services Agreement. A draft of our standard Corporate Administration Services will be provided upon request.

5.04 Government Penalties

A BD$300 penalty is incurred if the annual government fee is not paid by January 31 [S.131(3)]. If not paid by March 31, the company is required to cease carrying business and the directors become liable to fines [S.131(4)]. A company that carries on business in contravention of S 131)4) is liable to a fine of $100 per day [S. 131(5)] If not paid by June 30, the Registrar may take steps to strike the company off the register. If struck off, all of the company’s assets, net of liabilities, may become the property of the Government of Bermuda.

5.05 Retainer

We shall require a minimum retainer of US$10,000 which will applied as follows:

Legal fees (minimum) 3,000.00
Disbursements (estimated) 650.00
Government fee 1,870.00
Company administration fee (for one year) 3,500.00
Reserve for other expenses ,980.00
Total 10,000.00

5.06

Funds reserved for future expenses will be held for the company and applied against subsequent fees and disbursements.

5.07 Bermuda Dollar

The Bermuda Dollar is at par with the US Dollar. Although a Foreign Currency Purchase Tax and bank service charges are payable when Bermuda Dollars are exchanged for another currency, not tax is payable when US dollars are converted to Bermuda dollars. It is our firm’s policy to accept payment in US Dollars at par.

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