So, you’ve been advised that setting up a company in the Isle of Man is advantageous for your business requirements and you’ve located a licensed Corporate Service Provider (“CSP”) (Note 1) who can incorporate a company and provide the selection of ongoing company administration and accounting services you require. The next question may be, possibly from your CSP, which type of Isle of Man company would you prefer?
There are two main forms of Isle of Man company: one registered under the Isle of Man Companies Act 1931, generally referred to as a “1931 Act Company” and the other registered under the Isle of Man Companies Act 2006, generally referred to as a “2006 Act Company”. The 1931 Act Company is the more traditional form, whilst the 2006 Act Company is based on the International Business Company Act model.
There are a number of differences in the features and requirements relating to the two forms of company, which are well documented. A 2006 Act Company is not subject to a number of the traditional company requirements, for example there is no requirement to have a company secretary, to hold an Annual General Meeting, to have an authorised share capital or to prepare annual financial statements. A 2006 Act Company may have a sole director which can also be a company, whilst a 1931 Act Company must have at least two directors and they cannot be companies. For a 2006 Act Company there is also more flexibility around distributions, for example share capital can be distributed (subject to meeting a solvency test), and there is no restriction on financial assistance to purchase its own shares.
Choosing selective features as above, may suggest that the relative simplicity of and flexibility afforded by the 2006 Act Company makes it more attractive. However, certain features of the 1931 Company may be desirable for certain types of activity or structure, for example the requirement for shareholder involvement in certain instances, for example to consolidate or divide shares, may suit structures where these formalities are required more widely across other group companies. There are also certain features of the 1931 Act Company which don’t have an equivalent for the 2006 Act Company, for example in respect of insurance companies.
It is also worth bearing in mind that the role of the Registered Agent, required for a 2006 Act Company and which can only be filled by a CSP, bears a number of important responsibilities and therefore a charge for this service would be expected. Also, whilst annual financial statements aren’t required for a 2006 Act Company, in practice there may often be other reasons why these are required and, if they are, they will need to be produced to the same standard as those for a 1931 Act Company.
In summary, the decision as to which form of Isle of Man Company may be an easy one to make but it is worth taking into account any expected specific requirements of the company before concluding.
Finally, at the current time, a 1931 Act Company can re-register as a 2006 Act Company but not vice-versa. The Companies (Amendment) Bill 2000 which will be enacted in 2021 provides for the re-registration of a 2006 Act Company as a 1931 Act Company.
Note 1 – Freeport Trust Company is a licensed Corporate Service Provider and can incorporate 1931 Act and 2006 Act Companies and also act as Registered Agent.