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BVI Sole Director Succession Planning


Date：2023/08/24

The British Virgin Islands (BVI) is one of the earliest developed and most mature offshore investment jurisdictions in the world.

As a well-known offshore jurisdiction, the BVI is famous for its simple, efficient, and stable regulatory framework under the BVI Business Companies Act, which is suitable for international business operations. Currently, there are approximately 500,000 active BVI companies worldwide, most of which have individual shareholders or a single shareholder who is also appointed as the sole director.

When the Sole Director Faces an Unexpected Event – The Role of a Succession Plan

From a long-term perspective, consider the scenario where the sole shareholder is also the sole director and unexpectedly passes away.

  • If the deceased is both the sole shareholder and sole director, the company cannot appoint a new director until the shares are formally transferred to the heirs. This not only causes the shares to become frozen, but the company’s operations may be disrupted as the director cannot perform corporate functions and bank accounts may be frozen.
  • If the shareholder dies without leaving a will or with an offshore will requiring execution, the BVI court must approve the transfer of shares. During this period, all shares are frozen, and no actions can be taken until the court issues a ruling.

Thus, the usability of an offshore BVI company depends on whether a director succession plan has been implemented. A properly drafted succession plan makes it easier for designated persons to handle post-death affairs.

In practice, most shareholders either do not have a succession plan or have an incomplete one, which may render it invalid.

BVI Offshore Company Succession Process

If the deceased shareholder does not leave a will, the process depends on the tax residency and inheritance laws of the deceased’s home country, providing the necessary legal documents.

Example: Taiwan

  1. Legal opinion and death certificate must be issued by a Taiwanese lawyer.
  2. Documents must be notarized by a Taiwanese court.
  3. All documents are reviewed by a BVI lawyer to ensure compliance with local law.
  4. The BVI lawyer prepares the relevant inheritance documents for submission to the BVI court.
  5. Once the court issues a ruling, the shareholder and beneficial owner details can be filed with the registered agent.

Notes:

  • The process is complex and expensive. BVI lawyer fees start from USD 10,000, and combined with Taiwanese legal fees, total costs can be substantial.
  • The document preparation and court proceedings may take several months to over a year.

Two Key Issues to Note

  1. Deceased shareholder dies without a will:
    • Local intestacy rules apply, which may result in shares being inherited by relatives the deceased did not intend to benefit.
  2. Potential flaws in document design:
    • Undated or blank share transfer forms may become invalid. Any power to transfer shares terminates upon the director’s death. Backdating may face legal challenges from disgruntled heirs or creditors, leading to long disputes.

Ideal Solution for Sole Shareholder/Director Succession: Reserve Director

A reserve director is the preferred solution for a BVI company with a sole shareholder/director. Under BVI law (see Note 1), a reserve director can be appointed to take effect upon the death of the sole director.

  • Appointing a reserve director does not fully resolve share transfer issues, but it ensures the company continues normal operations and mitigates the risk of immediate paralysis during the transition.

Complete Trust Structure as the Optimal Solution

  • In certain cases, a full trust structure is the most ideal solution.
  • The shareholder transfers shares to a trustee, who holds legal title and has the fiduciary duty to protect and transfer shares to the shareholder’s designated beneficiaries.
  • However, a full trust structure and associated legal fees are cost-prohibitive for most individuals.

Key Takeaway

For individuals holding BVI company shares, it is critical to consider post-death share handling. Multiple succession planning options exist. Clients should plan proactively using legally valid arrangements to ensure uninterrupted company operations and protect assets from unforeseen events.

  • While this guidance focuses on BVI companies, similar rules may apply in other offshore jurisdictions. For detailed guidance, please contact us.

Note 1: BVI Business Companies Act Revision 2020, Section 113(7)

7. Where a company has only one member who is an individual and that member is also the sole director of the company, notwithstanding anything contained in the memorandum or articles, that sole member/director may, by instrument in writing, nominate a person who is not disqualified from being a director of the company under section 111(1) as a reserve director of the company to act in the place of the sole director in the event of his or her death. (Inserted by Act 26 of 2005)

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