An Isle of Man Government press release of
The Companies Act 2006 came into effect on
Several years into the existence of the 2006 Act Simcocks Advocates sees the two different types of company as "horses for courses". Which is more suitable for a particular client's needs depends on the situation. A characteristic of one type of company which might be an advantage in one situation may be a disadvantage in a different situation.
Following enquiries from clients, Simcocks has prepared the comparison table below setting out in summary form the characteristics of each type of company. This table is not exhaustive; it is intended as a practical guide and should not be taken as a statement of the law on any matter. References in the table to the Registry are to the relevant Isle of
We hope that this paper is of assistance both to clients deciding which type of company to use, and in working with each type of company.
Incorporation and initial matters
2006 | 1931 |
May be incorporated as limited (by shares, by guarantee, or hybrid) or unlimited (with or without shares) | Same |
Memorandum and articles of association required | Same |
Only licensed CSP may apply to incorporate a 2006 company | No similar restriction |
Company has separate legal personality | Same |
Subscriber shares required | Same |
Constitutional documents
2006 | 1931 |
The memorandum may specify the majority or conditions required to amend it or the articles | 75% voting majority required to amend articles |
The memorandum may authorise the directors to amend the memorandum or the articles | No equivalent |
The memorandum may restrict the company's activities in any way (but without limiting its capacity) | Only specified restrictions permitted (but without limiting the company's capacity) |
Memorandum and articles and changes thereto must be filed with Registry | Same |
2006 | 1931 |
No distinction between designations; can be "Limited", "Ltd", "Incorporated", "Inc" etc | Private company designation is "Limited" or "Ltd" and public company is "public limited company" or "PLC" |
No distinction between private and public companies | A company which may offer its securities to the public is a public company and has additional requirements as to filings etc |
Same | |
No equivalent | |
Same |
Shares
2006 Act Company | 1931 |
Shares may be ordinary, convertible, redeemable, preference, non-voting etc | Same |
Shares may be issued with or without a par value | Shares must have a par value |
Bearer shares prohibited | Same |
Same | |
Directors may consolidate or divide shares | Company in general meeting may consolidate or divide shares |
Directors may redenominate shares in other currency | No statutory provision to redenominate shares, and in practice redenomination is complicated |
Share certificates optional | Same |
Commissions at the rate decided by the directors may be paid for subscriptions for shares | Commissions for share subscriptions limited to 10% |
Statutory pre-emption rights may be applied by the articles to the issue of new shares by the company | No statutory pre-emption rights |
No filing requirement in relation to share capital | Notice of consolidation or division of shares, or increase in authorised share capital, must be filed with the Registry |
Class rights may be varied with the consent of the majority stated in the articles or 75% voting majority | Same, but 15% dissenters may apply to Court to disapply the variation |
No share premium account is required | Share premium account (undistributable) required |
No restriction on issuing shares at a discount | Issue of shares at a discount must be approved in general meeting and by the Court |
A purchaser which has acquired at least 90% of shares may compulsorily acquire the shares of the dissenting minority | Same |
Offering documents
2006 Act Company | 1931 |
Offering document is required to contain all material information | Same |
Directors may be liable for misstatement or omission in offering document | Same |
No equivalent | Registry may direct a company to amend an untrue or misleading statement in a prospectus by which securities are offered to the public (unless private placement exemption applies) |
Filing of offering document optional | Prospectus by which securities are offered to the public must be filed (unless private placement exemption applies) |
Capital maintenance
2006 | 1931 |
Distribution of share capital permitted provided a solvency test is satisfied | Reduction of share capital not permitted without specified shareholder and Court approval |
Company may purchase or redeem its own shares subject to the solvency test and shareholder approval in certain cases | Purchase by a company of its own shares is permitted subject to shareholder approval and in some cases solvency and auditor requirements |
Shares may be redeemed from any account provided the company passes the solvency test | Reserves from which redeemable shares may be redeemed are restricted |
No equivalent prohibition (subject to the solvency test) | Financial assistance for the acquisition of its own shares by a public company prohibited |
No equivalent restriction (subject to the solvency test) | Financial assistance for the acquisition of its own shares by a private company not permitted if it reduces share capital or share premium |
No restriction on share capital being reduced provided the company satisfies the solvency test | Reduction of ordinary share capital and share premium account only with specified shareholder and Court approval |
Company may make any distribution to members it wishes (subject to the solvency test) | No equivalent; common law capital maintenance rules apply |
Wide statutory definition of "distribution" | No equivalent |
Directors may be liable for distribution made when company did not satisfy the solvency test | Directors may be liable for dividend made when company did not have distributable profits |
Solvency test is (i) able to pay debts in the normal course of business and (ii) value of assets exceeds liabilities | Concept of "solvency test" not applicable |
Members
2006 | 1931 |
Must have at least one member | Same for private company (but a PLC must have at least two members) |
Must keep register of members | Same |
No notice of any trust may be entered on the register of members | Same |
The directors may rectify the register of members if satisfied inaccurate, or rectification by the Court available if necessary | Rectification by the Court available if necessary to rectify the register of members |
Members' remedies are provided by statute e.g. derivative actions, conduct that is oppressive or unfairly prejudicial | Members' remedies are largely a matter of common law (e.g. exceptions to the rule in Foss v Harbottle) with a statutory remedy for oppression |
Company may elect to file register of members; annual return does not contain details of members | No requirement to file register of members but annual return must contain identity of members and shareholding |
No equivalent | Statement that company has only one member must be entered in register of members |
No equivalent | Index of members required in certain circumstances |
Register of members open to inspection by a member, the IoMFSA and the Attorney General | Register of members open to public inspection |
Register of members prima facie evidence of title to shares | Same |
Meetings and resolutions of members
2006 | 1931 |
Shareholders exercise powers by resolution of simple (50%) majority unless the articles specify a higher majority (this applies to matters such as amending the articles and winding up) | Special or extraordinary resolution requiring 75% majority required in certain cases (e.g. amending the articles, winding up) |
14 days notice required for shareholder meetings, which may be waived by 90% or smaller percentage stated in articles | 14 or 21 days notice required. Table A permits 95% of shareholders to consent to short notice |
No equivalent | Notice of general meeting must be given to auditor (if any) |
Resolutions not required to be filed unless altering memorandum or articles | Special, extraordinary and certain other resolutions must be filed |
10% of members may require directors to convene meeting | Same |
Requisitionists do not have statutory power to convene meeting in default of directors doing so | Requisitionists have statutory power to convene meeting in default of directors doing so |
Telephone or electronic meetings permitted by statute | No equivalent but can be permitted by the articles |
Written resolutions permitted by statute | Same, and it is also possible for the articles to permit written resolutions |
Articles may specify the percentage of voting rights required to pass written resolution | Written resolutions using the statutory procedure must be passed by all members entitled to vote on the matter |
No equivalent in relation to the statutory procedure | Written resolution using the statutory procedure must be given to the auditor who may refer it to general meeting (the procedure in the articles need not require this) |
No requirement for AGM | AGM must be held; except that the members of a private company (not being a charity) may unanimously elect to dispense with AGMs |
No equivalent | Any member may rescind or suspend such election |
Court may order calling of general meeting if otherwise impracticable to do so | Same |
Member has no statutory right to inspect minutes of general meetings and written resolutions | Member may inspect minutes of general meetings and written resolutions |
Minority protection
2006 | 1931 |
Remedy available in the event of oppression or unfair prejudice | Remedy available in the event of oppression or disregard of member's proper interests as such |
Registered office and registered agent
2006 | 1931 |
Must have registered office in the | Same |
Must have a registered agent in the | No equivalent requirement |
Registered agent must give at least eight weeks notice of resignation | No equivalent requirement |
Accounts and accounting records
2006 | 1931 | |
Company must keep accounting records and other documents at office of registered agent or send copies every 12 months | No equivalent requirement | |
Company must keep reliable accounting records | Same, with certain prescribed requirements | |
Not required to prepare financial statements, but a member or director may demand that they be prepared | Required to prepare financial statements | |
Member may inspect accounting records if company fails to comply with demand that financial statements be prepared | Member not generally entitled to inspect accounting records | |
IoMFSA and Attorney General entitled to inspect documents and records | No equivalent | |
Not required to have financial statements audited unless securities listed | Required to have financial statements audited unless exemption applies | |
If financial statements audited, auditor must have the statutory qualifications | Auditor must have the statutory qualifications | |
If financial statements prepared must give a true and fair view
and be in accordance with |
Financial statements must give a true and fair view, must be in
accordance with | |
No equivalent (but restrictions may apply to companies regulated by the IoMFSA or IPA) | Restrictions on limitation of liability of auditors |
Annual return
2006 | 1931 |
Must make annual return to the Registry of identity of registered agent, registered office and directors | Must make annual return to the Registry of share capital, secured debt, registered office, directors and members (with financial statements in the case of a PLC) |
Directors and officers
2006 | 1931 | |
One director may execute a deed for the company | Two directors or director and company secretary required to execute a deed | |
No requirement for company secretary | Company secretary required, who must have a prescribed qualification in the case of a PLC | |
Must have at least one director | Must have at least two directors | |
Director may be a body corporate provided licensed as a corporate services provider | Corporate director not permitted | |
Register of directors must be kept | Same | |
Register of directors open to inspection by members, IoMFSA and Attorney General but not by the public | Register of directors open to inspection by the public | |
No equivalent | Company must state names of directors in all official documents | |
Directors must disclose interests in transactions | Same | |
Company may indemnify director who acts honestly, in good faith and in what he believed was in the best interests of the company | Company may indemnify director but not for negligence, default, breach of trust or breach of duty | |
Company may buy D&O cover | Same | |
Company must file particulars of directors with Registry | Same | |
Director includes "shadow director" for certain purposes | Same | |
Director may be removed by the directors (if articles permit), by resolution (50%) in general meeting or written resolution by 75% of shareholders | By statute a special (75%) resolution is required to remove a director, but the articles often allow removal by ordinary (50%) resolution | |
No equivalent | Director entitled to be heard in general meeting on resolution to remove him using the statutory power | |
No equivalent | Directors must disclose their audited remuneration over the past three years if required by 25% of members | |
No equivalent | Contract between company and sole member who is also a director must be recorded in writing or the directors minutes | |
No equivalent | Assignment of office by director must be permitted by the articles and approved by special resolution | |
Must keep minutes of meetings of directors and members | Same | |
Must inform registered agent where minutes of directors meetings are kept (if not kept by registered agent) | No equivalent |
Protected cell companies
2006 | 1931 |
Protected cell company limited by shares permitted | Same |
Existing company limited by shares may convert to PCC | Same |
May reduce share capital subject to the solvency test | May reduce share capital with Court approval |
No equivalent | Restrictions on transfer of cell assets (other than in the ordinary course of business) without a "cell transfer order" by the Court |
Same | PCC must inform counterparty to a transaction that it is dealing with a PCC and of the identity of the relevant cell |
Failure to so inform counterparty is an offence by the PCC (and by any director who consented or was negligent in relation thereto) | Failure to so inform counterparty results in personal liability for directors for that transaction, unless excused by the Court |
No equivalent | Cell cannot (without written consent of all members of that cell) grant security in respect liabilities |
Charges/security
2006 | 1931 |
Company may but is not obliged to file security interests with Registry | Company must file specified charges with Registry |
Non-filing of a security interest means it will be void as against a liquidator/creditor of the company | Same, except that the charges which will be void as against a liquidator/creditor are of a narrower class than "security interests" |
Registry may file a security interest late provided winding up has not commenced | Application to Court required to file a charge late |
Company must keep a register of security interests, with a copy at the registered agent's office | Company must keep a register of charges |
Conversion
2006 | 1931 |
1931 |
2006 |
Statutory merger
2006 | 1931 |
Statutory schemes of merger and consolidation permitted | No equivalent |
Schemes of arrangement and takeovers
2006 | 1931 |
Schemes of arrangement permitted with Court approval | Same |
Scheme approved by 75% of members/creditors (and classes thereof) and sanctioned by the Court is binding on all | Same |
Scheme must be filed with Registry within seven days of Court approval | Scheme not obliged to be filed with Registry, but Court approval has no effect until filed |
A purchaser which has acquired at least 90% of shares may compulsorily acquire the shares of the dissenting minority | Same |
Takeover Code statutorily applied | Same |
Redomiciliation
2006 | 1931 |
Foreign company may continue as a 2006 |
Foreign company may continue as 1931 |
Company may redomicile out of the |
Company may redomicile out of the |
No equivalent provisions | Redomicile of insurance company is possible under the Insurance Act 2008 |
Statutory declaration by registered agent (continuation) or directors (discontinuation) required | Advocate's certificate required |
Registry approval is administrative and takes about two days (depending on workload) | Registry approval is discretionary and in a complicated case may take longer |
Liquidation and strike off
2006 | 1931 |
The 1931 Act applies in relation to liquidation | Same |
Company may be struck off the register by Registry in certain circumstances | Same |
Registry may strike defaulting company off register; company is then substantially disabled and will be dissolved after 6 years, but can be restored on application within 12 years | Registry can strike off inactive company which is then dissolved, but can be restored on application within 12 years |
Company that has ceased to operate and has discharged all its debts and liabilities can apply for administrative dissolution | Same (except for public company) |
Inspector
2006 | 1931 |
Any member may apply to Court for the appointment of an inspector to investigate the affairs of the company | Members holding 33% (of a bank) or 10% (others) of issued shares or Registry may apply to Court for the appointment of an inspector |
No equivalent | Members may by special resolution appoint an inspector to investigate the affairs of the company |
Regulatory and capital markets
2006 | 1931 |
IoMFSA licensing policy | Not applicable |
The IoMFSA may grant other licences to a 2006 | Not applicable |
Have been listed on AIM, NYSE and on other markets | Listed on LSE main market, AIM and on other markets |
Pursuant to IoMFSA guidance note, may be an international collective investment scheme if certain 1931 Act characteristics adopted | No equivalent IoMFSA guidance note |
The IoMFSA Insurers Authorisation Guidance states that it will authorise 2006 Act companies subject to the company adopting certain 1931 Act requirements | Not applicable |
Registry filings
2006 | 1931 |
Memorandum and articles of association and changes to each | Same |
Filing of offering document optional | Prospectus by which securities are offered to the public must be filed |
No equivalent | Return of allotments of shares must be filed except by an open ended investment company |
No equivalent | Notice of consolidation, division or cancellation of shares, or redemption of preference shares, must be filed except by an open ended investment company |
No equivalent | Notice of increase in authorised share capital must be filed |
No equivalent | Court order reducing share capital must be filed |
No equivalent | Register of debentures open to inspection by debentureholder |
Registration of security interests optional (see above) | Specified charges must be registered |
Order for appointment of receiver of the property of the company must be filed | Order for appointment of receiver or manager of the property of the company must be filed |
Annual return required of registered agent, registered office and directors | Annual return required of share capital, secured debt, registered office, directors and members (with financial statements in the case of a PLC) |
Resolutions amending the memorandum or articles must be filed | Special, extraordinary and certain other resolutions must be filed |
Register of directors may be filed | Register of directors must be filed |
Register of members may be filed | No equivalent |
Registered office must be filed | Same |
Registered agent must be filed | No equivalent |
Certain documents in relation to statutory procedures such as merger, consolidation, redomiciliation etc | Similar |
No equivalent | Various filings in relation to share buy-backs |
Functions of registered agent (2006
Making application for incorporation |
Reserving a name |
Filing an offering document which the company elects to file |
Receiving and registering stock transfer forms unless another person has been appointed |
Give not less than eight weeks notice if it wishes to resign as such |
May file notice of change of registered office or registered agent |
Keep the constitutional documents, registers and accounting records of the company at its office (or copies of those documents) |
Either keep the directors' and members' minutes and resolutions, or be notified where they are kept |
Service of documents on the company may be effected by being sent to the registered agent |
Keep an imprint of the common seal (if any) |
Filing annual return |
Filing notice of release of a charge |
Applying to re-register a 1931 |
Filing a scheme of merger or consolidation and making it available for inspection |
Applying for consent to a foreign company being continued in
the |
Applying for consent to a 2006 |
Service of proceedings on a discontinued company or a director may be effected on the registered agent |
Miscellaneous
2006 | 1931 |
Registrar may issue certificate of good standing | No power to issue certificate of good standing but the Registry will issue a certificate confirming the details held on the register |
Definition of group similar | Definition of group similar |
No equivalent | Insurance company to prepare and post an annual statement in prescribed form |
Registry fees
Registry fees for 2006 |
2006 | 1931 |
Provided the company does not derive income from a banking
business or land in the | Same |
The profits of the company may be attributed to and taxed on
| Same |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Simcocks
Douglas
IM99 1PY
Tel: 1624690300
Fax: 1624690333
E-mail: lcreighton@simcocks.com
URL: www.simcocks.com
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