On 1st November 2006 Middleton Katz Chartered Secretaries LLC was a part of a little bit of history when we were fortunate enough to incorporate the very first company to be set up under the brand new Isle of Man Companies Act 2006, Isle of Man Company Number 00001V.
At the time, there were mixed views about how successful the new Act would prove to be. Some Advocates felt it unnecessary and others had doubts about the legislation; it was too flexible they thought to be accepted by regulators and bodies such as the London Stock Exchange. Despite, perhaps because of its intricate nature, they much preferred the tried and tested 1931 Act with which they were familiar. Now, more than five years on, it seems clear that the 2006 Company has won the argument. Many are listed on stock exchanges around the world and the entity is the preferred one for almost all of our clients.
International clients across the world benefit from the flexibility offered by the Manx 2006 entity. Indeed, experience shows that in many cases, the existence of the 2006 Act is a decisive factor in bringing clients to the Isle of Man in the first place.
Thank you to the Advocates at Appleby, Cains and the other people that lobbied Government to deliver us this gift. So what of local businesses on the Island – how has the new Act benefited them ? Actually, hardly at all – very few are incorporated under the 2006 Act. This is partly for historic reasons – most were set up before the 2006 Act existed – but its easy and inexpensive to convert from the 1931 Act to the 2006 one and many would benefit from the new regime. Here are a few of the most obvious advantages of the 2006 Act:
(1) The opportunity for a single director. For many small entrepreneurs, this is a huge advantage. The old 1931 Act companies require 2 natural persons and a company secretary. Often this means business people persuading their partners to be involved as a second board member – this has awkward implications for the protection of non business assets if problems occur with the business that can result in personal liabilities for the directors. Companies incorporated under the 2006 Act require only a single director and no Secretary – thus the requirement to appoint spouses or other parties as officers to make up numbers is removed.
(2) Simpler provisions for Corporate Management – for example there is no statutory requirement for 2006 companies to hold annual general meetings, there are simpler provisions for holding and waiving notice for board meetings – in short there is less to go wrong.
(3) Straightforward filing requirements. The 2006 Act has much simpler and less onerous requirements for filing documents at the Companies Registry. There is no need to file changes in directors, no requirement to file Special Resolutions and the annual return filing form is an order of magnitude simpler. The new shuttle annual return for 2006 companies is mailed to the company prior to its due date and as well as being simple to complete is difficult to forget ! The net result, generally, is far less work and far less likelihood of unwelcome fines for late filings or unintended strike off by the Registrar.
(4) Simple and flexible shareholders’ capital rules. 2006 Act Companies have no concept of authorised share capital (and therefore no capital duty) – they can issue shares of any value – including shares of no par value and can, subject to a simple solvency test, pay dividends and buy back their own shares without restriction. In contrast 1931 Act Companies are subject to a myriad of complex rules contravention of which can result in directors inadvertently committing criminal offences as well as subjecting them to fines and making them personally liable financially.
(5) Accessibility. I think most importantly the Act is accessible and written in plain English – 30 minutes with a cup of coffee will give the reader a good layman’s understanding of the law whereas reading the 1931 Act – which is actually based on even older legislation is more akin to reading the St James Bible. The advantages are apparent so why aren’t more local businesses establishing themselves under the 2006 Act ? I think there is a perception that the 2006 Act is intended for International clients only – how strange – why ? Surely it makes no sense to design and pass this excellent piece of legislation and not make it available to – and indeed encourage its use by, our local business people ?
On a more practical level, the problem lies with the requirement under the 2006 Act for the appointment of a licensed Fiduciary to be appointed as Registered Agent on every 2006 Act Company. From experience, we know how difficult it is for local business people to find fiduciaries willing to help them understand the benefit of the advantages offered by the 2006 Act and also take up the appointment of Registered Agent for a fee which makes sense to the local market. We think that the 2006 entity can benefit local business people and that it should be available to them. Our goal is to make 2006 Act Companies more accessible to local businesses and provide the Registered Agent and the required support services to them for a reasonable fee. We will happily provide a free consultation to local business people to explain the benefits of the 2006 Act and discuss any other corporate governance / secretarial queries that they may have.