Bahamas - Additional Offshore Structures

INTRODUCTION

In order to remain at the forefront of the international financial services industry, The Bahamas has introduced and re-established new products structures entities and services. These include Investment Funds (mutual and smart funds), Limited Duration Companies, Segregated Accounts Companies, Private Trust Companies, Foundations, Limited Partnerships and Exempt Limited Partnerships, and Insurance Companies.

INVESTMENT FUNDS

The investment funds industry has experienced rapid growth in recent years. Establishing the fund offshore is appealing because it is beyond the onshore regulatory net, the investment returns are tax favoured, confidentiality is more easily guarded, the offshore center is properly regulated, cost savings are possible, and there is access to flexible established systems which may not be readily available onshore.

BAHAMAS LEGISLATION

The Bahamas introduced special mutual funds legislation in 1995 for the licensing and regulation of mutual funds and their administrators. “Mutual funds” include companies, unit trusts and partnerships, the purposes of which are the pooling of investor’s fund with the aim of spreading investments risks and entitling the investors to proportionately participate in their investments and the profits earned.

In December 2003, a new legislative platform for investment funds was launched to create an attractive, risk-based regime founded upon four classes of funds. This is based upon the clear introduction of categories of investors rather than the traditional reference to the value of investment.

The legislation, known as the Investment Funds Act 2003 (“IFA”), establishes a regulatory regime for Professional, SMART, Standard and Recognized Foreign Funds. The IFA also maintains the existence of a dual licensing regime whereby the Securities Commission of The Bahamas (SCB) is authorized to license all classes of funds and Unrestricted Fund Administrators (UFA) are authorized to license Professional & SMART funds. UFAs are subject to continuous oversight by the SCB for compliance with prescribed guidelines and other prudential norms.

THE PROFESSIONAL FUND

The Professional Fund, which continues to be the dominant fund class in The Bahamas, is a separate class designed for sophisticated investors, with prescribed disclosure and other requirements typical of the global alternative investment fund market. While the SCB may license this class of fund at the client’s behest, it is more likely that once the UFA is satisfied that the fund meets all due diligence and regulatory standards, the Fund will be licensed by the UFA. The launch of this type of fund can take place in a two to eight week period depending on the ability of the UFA to obtain an acceptable degree of comfort over the key fund participants, the offering document and the constitutive documents.

SMART FUNDS

The Bahamas SMART funds concept is the most innovative development in the country’s funds industry. It recognizes that many funds do not fit a predefined classification of retail or professional third party funds. A careful analysis of this prompted the launch of SMART funds, or a Special Mandate Alternate Regulatory Test Fund. SMART funds provide for the development of regulatory oversight tailored to the client structure. As the needs of clients vary and evolve, intermediaries and clients have the ability to develop and submit to the Securities Commission proposals to establish entities with a specific mandate.

Standard Fund The Standard Fund is a Bahamian-based investment fund that does not meet the definition of a Professional, SMART or Recognized Foreign fund. While the Standard fund follows similar disclosure rules of the Professional fund, it anticipates an offering to the general public or a client driven request and consequently may be licensed by the SCB only.

FORMS

Bahamian mutual funds have investment freedom, except as regards Bahamian real estate. Most funds choose the International Business Company, Limited Duration Company, Exempted Limited Partnership or Unit Trust form, all of which have taxation and exchange control advantages. Funds of funds and umbrella funds are permitted. Units can be offered in bearer form although many institutions won’t deal in them.

The Commission has sweeping powers to control mutual funds and mutual fund administrators, if it chooses to use them. The Act provides the Commission with “administrative sanctioning” powers allowing it to deal swiftly and effectively with breaches of the Act by both regulated and unregulated funds.

LIMITED DURATION COMPANIES

The Limited Duration Company has an existence which is limited to a fixed period with a maximum of thirty (30) years. No member’s interest in a LDC can be transferred without the consent of all other shareholders. The management of a LDC is vested in its members in such proportion as is their membership. The terms of the LDC are expressed in its Articles. It comes to an end at the expiration of its term or by a prior resolution to wind it up.

SEGREGATED ACCOUNTS COMPANIES (SAC)

A SAC is a company which is registered under the Segregated Accounts Companies Act 2004. The SAC may create separate accounts with assets and liabilities which are segregated from the assets and liabilities attributable to every other account and also from the company’s general assets and liabilities.

THE BAHAMAS PRIVATE TRUST COMPANY

This can be established usually by forming a Bahamas IBC to act as Trustee of underlying family trusts. This concept is becoming increasingly popular with the ultra high net worth family or individual. It is an all encompassing, cost effective and stress-free “Family Office” structure.

THE BAHAMAS FOUNDATION

This is a hybrid vehicle between a Trust and a Company and is suitable for clients from a civil law country where the trust concept is not well known. Where the client is not comfortable using a third party trustee, The Bahamas Foundation enables him to maintain an element of control over the assets while providing anonymity of ownership.

A foundation is a distinct legal entity registered under the Foundations Act of 2004. Once registered, a foundation is deemed to be a resident domiciled in The Bahamas. Foundations may be established for private, commercial or charitable purposes provided same are lawful and include the management of its assets. Foundations are created by the will of the founder or by the founder executing a charter which may, but need not, be filed in the Registry of Foundations. Foundations may be used for the some purposes for which trusts and companies are presently used: estate planning, tax planning, preserving family wealth, segregating assets, perpetuating corporate governance philosophy, subordinating debts, separating voting and economic benefits, investing in private companies with a poor economic performance, owning private trusts companies and establishing charities. Foundations may also be used where anti-forced heirship and creditor protection are important.

The Bahamas foundation is discussed in more detail in another post.  You may click here to review my post on the Bahamas foundation.

LIMITED PARTNERSHIP

The Partnership Limited Liability Act, Ch. 19 enables a partnership to be formed with limited liability except for the purposes of conducting a banking or insurance business.

A limited partner is one whose liability for the firm’s debts is limited to the amount of his capital contribution. He shares in the firm’s profits but takes no part in the management of the partnership business and has no power to bind the firm but he is liable for all debts and obligations of the firm.

The main features of such a partnership are:

a.	One or more of the partners must be general partners who are personally liable for the obligations of the partnership.
b.	A partnership agreement must be executed and registered for public scrutiny.
c.	Limited partners may not transact any of the business of the partnership.
d.	One or more of the general partners must make a declaration that a specified sum has been contributed by each of the limited partners.

Legal fees for preparing and seeing to the execution of and registering a partnership deed may cost upwards of $800.00. A registration fee is payable to the Government but no annual fees are payable.

EXEMPTED LIMITED PARTNERSHIP

An Exempted Limited Partnership (ELP) can be established under the Exempted Limited Partnerships Act. One of more partners referred to as limited partners can enjoy limited liability, while the general partners are liable for all the debts and obligations of the partnership.

One general partner is required who should be an individual resident in The Bahamas or a corporation incorporated or registered under any of the local Acts.

The initial ELP must be included within the business names and this partnership must have a Registered Agent within The Bahamas.

Although an ELP is required to pay its registration fee and an annual fee for each subsequent year, it is exempted from paying local taxation, business fees and stamp duties for a period of 50 years and its business may be conducted within or outside The Bahamas.

This Memorandum is for your information only and nothing contained in this Memorandum is intended to constitute a legal opinion.  If you require any detailed advice you should contact a Bahamian commercial attorney.  You can contact a Bahamian commercial attorney by clicking here.