Bahamas - The Business License Act 2010

The Business Licence Act, 2010, ("the Act") came into force on 1^st January, 2011.  It introduced new licensing and taxation requirements to operate a business in The Bahamas.  Licence fees have now changed and will be based on "turnover".

"Turnover" is defined as the total revenues in money or money's worth accruing to a person for his own use and benefit from his business activities within The Bahamas during the preceding year or any part thereof or in such other accounting period as the Secretary (as defined in the Act) may allow, including all cash, credit sales and commissions without any deductions whatsoever.

Existing businesses will be deemed licensed for a period of 90 days from the commencement date of the Act.

A new Business Licence Review Board has been established to hear appeals by persons aggrieved by decisions of the Secretary regarding applications for business licences or approval of business names.

Any person who attempts to evade payment of business licence fees, keeps false accounts or provides false information to the Secretary may be liable to up to two years imprisonment.

Directors and officers of companies and partners may be liable for being knowingly involved in offences committed by their companies or partnerships.

A foreign person who contracts to carry out business must apply for a Temporary Licence and pay a fee of 1.5% of the value of the contract.

The Liquor Licence Act has been repealed by the Act and, accordingly, persons wishing to sell liquor must now apply for a licence in accordance with the procedure set out in the Act.

Filing Requirements

• A business whose licence has expired shall be deemed licensed for 30 days from the date of expiry.  In other words, all businesses must apply for and obtain a new licence before the 31^st January in each year.
• All businesses must submit financial results to the Secretary before the 31^st December of each succeeding year in order to apply for a renewed licence.
• A business must maintain accounts and records of any transactions relating to the business for a period of Five (5) years from the date of the transaction.
• A business which does not exceed a turnover of $50,000 is not required to maintain accounts and records.
• The Secretary may make an assessment of tax payable by an applicant for a licence within Five (5) years of the date the sum was tendered or, in the case of a temporary licence, within Two (2) weeks of the completion of the project.
• Applicants for a business licence must, at the time of submission of their application, submit information to the Secretary on their proposed business name. This application must include a declaration of beneficial ownership.

Licence Fees

Business licence fees are now set at the following rates based on the business' turnover unless otherwise stated:

• Agriculture/fishing/farming; food/meat/fruit processing:  0.5%
• Accountants/Doctors/Attorneys/Architects/Engineers:  1%
• New Business:  $100.00
• Where turnover >$50,000 but < $500,000:  0.5%
• Where turnover >$500,000:  0.75%
• If the Business is Non-Resident for Exchange Control Purposes:  $300.00
• Insurance companies registered under the Insurance Act: 3% of gross premiums per quarter to be paid 4 weeks prior to the end of the respective quarter
• Telecommunication companies:  3%
• Banks and Trust Companies registered under the Bank and Trust Companies Regulations Act shall pay an annual fixed amount determined by the value of assets under management

This post is intended for your information only and is not intended to constitute a legal opinion.  If you require detailed advice, you can contact a Bahamian commercial lawyer by clicking here.

Domestic Companies in The Bahamas

INTRODUCTION

Trading as a private limited liability company enables a person to protect himself from the debts and liabilities of the company while being entitled to enjoying all the profits earned by the company.

The Companies Act 1992 ("the Act") consolidated and revised the law regarding the incorporation, management and control of domestic companies in The Bahamas.

Companies registered under the Act can carry on various types of business in The Bahamas including:

a.	Real Estate transactions in The Bahamas (including property and resort development)
b.	Commercial enterprises with residents of The Bahamas in Bahamian dollars
c.	Banking and Trust business
d.	Insurance business
e.	Manufacturing

The Act also provides for public companies, non-profit companies and foreign companies. Companies usually conduct business with Bahamian residents in Bahamian dollars, but in special cases they are permitted by the Exchange Control Department of The Central Bank of The Bahamas to maintain foreign currency accounts subject to certain reporting requirements, terms and conditions.

Notwithstanding the fact that such companies are subject to the Exchange Control Regulations, a system in place whereby they can readily obtain foreign exchange by converting Bahamian dollars for the purchase of goods and services abroad, the payment of pre-approved foreign loans, and the repatriation of profits and dividends. 

SIGNIFICANT PROVISIONS 

Among the more significant provisions of the Act are the following:

a.	Two or more persons may incorporate a company.
b.	A standard form of Articles of Association is included in the Act itself and can be adopted by mere reference, thereby further reducing the paperwork requirements of company formation.
c.	Meetings of members of a company may be held outside The Bahamas and participation in meetings is possible by telephone or other electronic means.

COMPANY INCORPORATION

The first step in the process of incorporating a company is the reservation of a name for the company. The Registry in the Registrar General’s Office provides a 24-hour company name reservation service and confirmation of a name is guaranteed immediately in most cases.

If a company is incorporated with a name which is similar to another company already on the record, the Registrar may give notice to the last registered company to change its name and if this is not done within sixty (60) days of the notice, then the Registrar may direct the company to change its name to such name as appropriate. The word “Limited” or the letters “Ltd.” must be the last word in the name of every company (unless the company is approved by the Registrar of Companies as a non-profit company, whereby the use of "limited" or "ltd." can be dispensed with).

A Memorandum of Association must be filed with the Registrar General. It must be signed by at least two subscribers (who must subscribe for at least one share each) in the presence of at least one witness. The witness must sign and swear to an affidavit stating that the subscriber signed the memorandum in his presence.

A subscriber, who is not a resident of The Bahamas, or his nominee, must get permission from The Central Bank. Such permission is usually not difficult to obtain. No person who is under the age of majority, of unsound mind, or an-discharged bankrupt may join in the incorporation of a company. 

MANAGEMENT OF THE COMPANY 

The Act provides that the Bahamian Company shall be managed by at least two directors. No person who is under the age of majority, of unsound mind or who an un-discharged bankrupt may be a director. Nominee officers and directors as well as shareholders can be utilised.

A notice of the names of persons consenting to be directors must be filed with the Registrar along with the Articles of Association. Such directors hold office until the first meeting of the members of the company at which time election of directors takes place. Directors hold office until they are disqualified, removed by resolution at an extraordinary general meeting or until their death or resignation.

Directors meeting may be held at any place within as well as outside The Bahamas and upon such notice as the directors determine unless otherwise provided for by the Articles of Association. 

The Act provides for participation in meetings by telephone or other communication, which allows recognition by the directors of each other’s voices. 

All acts of the company are affected by resolution. The Act distinguishes between “resolution of members” and “resolution of directors”.

The first annual general meeting of the shareholders must be held within three months of the date of incorporation of the company. At that meeting shareholders may elect the first officers, directors, etc.

All shares are registered shares with a par value. No bearer shares are permitted or shares without a par value. 

FILING REQUIREMENTS

1.	All companies must file with the Registrar the names of the officers, directors, managers, and a Bahamian registered office address.
2.	Every company which has a capital divided into shares must file an annual return at the Registry containing the following information: a. A list of members stating the names, addresses and occupations of all members mentioned and the number of shares held by each and the names of those who have ceased to be members. b. The amount of the company’s capital and number of shares into which it is divided. c. The number of shares taken from the formation of the company up to the date of the summary. d. The amount of calls made on each share, the total amount of calls received, the total number of calls unpaid, the total number of shares forfeited. e. The registered number of the company.
3.	All companies must also file an annual return declaring whether or not Bahamians beneficially own sixty (60) per cent of its shares.

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

International Business Companies in The Bahamas

THE ACT 

The International Business Companies Act 2000 and its amendments thereto provide for the establishment of International Business Companies (IBC’s).

PRIMARY USES OF AN IBC

IBC’s established in The Bahamas are extremely popular because they serve many useful purposes. Some of the more important reasons for using IBCs are: 

1.	INVESTMENTS: These include certificates of deposit, savings and other bank accounts, currencies, stocks and bonds, various banking instruments, real property, and valuables.
2.	INTERNATIONAL TRADE: IBC’s facilitate the purchasing and sale of merchandise of all description across country borders. Agency, brokerage and representative agreements may also be established using IBC’s, and warehousing, shipping, transportation and bulk purchasing facilities arranged using IBC’s.
3.	REDUCED OR DEFERRED TAXATION: IBC’s can legally be utilised to reduce, defer or avoid the payment of taxes.
4.	INVESTMENT DIVERSIFICATION: IBC’s can help individuals diversify their assets and the jurisdictions in which they are held.
5.	LEGAL RIGHTS OF INHERITANCE: Sometimes the individual is not happy with the legal rights of inheritance in his country of residence and domicile and may prefer to hold assets in an IBC in The Bahamas.
6.	EMIGRATION: A wealthy individual may decide to emigrate and hold assets in an IBC.
7.	ABILITY TO CAPITALISE ON ENTREPRENEURIAL SKILLS: An inventor or author or successful investor may find it advantageous to assign his work to an IBC for worldwide application.
8.	OVERSEAS ENGAGEMENTS: An IBC may facilitate savings where an individual is employed abroad. Professionals and others with special skills and expertise may contract their services to IBCs to increase their disposable incomes.
9.	FINANCIAL PLANNING: An IBC may assist in protecting assets against frivolous lawsuits, civil disturbances, family disagreements and other situations.

Taxation

An IBC and its shareholders are not subject to any income tax, corporate tax, business license fees, or stamp duty on transactions. However, stamp duty is payable in relation to real property situate in The Bahamas which it owns, or is owned by any company in which it holds shares or for which it holds a lease.

Requirements of an IBC 

IBC’s may be incorporated or continued under the Act, and carry on any business which is not prohibited under the laws of The Bahamas. 

It’s activities may include acquiring land in The Bahamas or holding investments abroad , maintaining offices, opening a bank account, preparing and keeping books and records such as those of trading operations, and holding directors’ and shareholders meetings. It may be approved to conduct business with residents of The Bahamas.

Capital 

There is no minimum authorised capital for an IBC or a minimum capitalisation requirement. The usual authorised share capital is US$50,000.00, as this is the maximum authorised capital permitted for the minimum government license fee payment. The capital may be expressed in any currency. Shares of no par value are permitted.

An IBC may be wholly owned by one or more persons or entities. Residents of The Bahamas may be approved by The Central Bank of The Bahamas to act as shareholders. An IBC may purchase, redeem or otherwise acquire and hold its own registered shares but only out of surplus or in exchange for newly issued shares.

Pre-Incorporation Instructions

A person or entity that wishes to have an IBC should consult a Bahamian corporate services attorney. The Bahamian corporate attorney can properly advise as to the documentation required, formalities, procedure and costs.

Incorporation 

Three names must be provided by the prospective client in order of preference. Once the name is approved, the documents are submitted to The Registrar General’s Department for registration. Once the registration is completed, a Certificate of Incorporation and certified copies of the Memorandum and Articles of Association are provided.

Registered Agent

Each IBC must appoint a Registered Agent in The Bahamas. Typically, your Bahamian corporate attorney will be able to facilitate these as most firms have corporate service providing companies as well.  If you are interested in incorporating an IBC you can contact a Bahamian corporate attorney by clicking here.

Confidentiality and Registers 

The IBC affords a high degree of confidentiality since there are limited filing requirements. Only the name of the Company, a copy of the Register of Directors and Offices, its Registered Agent’s name and address, the company’s Memorandum and Articles of Association, including any amendments thereto, must be filed with the Registrar. The names and addresses of the company’s shareholders are not filed or registered in The Bahamas; however, the register of members must be kept and maintained at the Registered Office but is not available for inspection by the public.

Under the provisions of the Act and IBC can only issue registered shares. The names of the shareholders appear on the face of the share certificates. Bearer shares are not permitted.

Directors 

The business and affairs of an IBC may be managed by a board of directors consisting of at least one director. Directors are usually appointed by the shareholders. There is no requirement for frequency of directors’ meetings.

Corporate Books, Records The books, records and minutes of meetings must be kept at the Registered Office and copies at such other places as determined by the directors or the Articles.

Registration and Licence Fees

IBC’s are required to pay registration fees upon incorporation and an annual licence fee of $350 to the government. License fees are payable before the 31st of January each year, beginning the year following the incorporation of the company. Penalties are due for late payment and the Registrar can strike IBC’s off the register for non-payment. 

The Seal Each IBC must have a seal which must be kept at the Registered Office.

Amendments to Memorandum or Articles

IBC’s can amend their Memorandum and Articles of Association by shareholders’ resolution, or where permitted by the Memorandum and Articles, by a resolution of directors. Amendments may be made changing the name of an IBC, increasing and decreasing the authorized capital, dividing or combining shares and changing the maximum number of directors, among other things. Amendments must be submitted to the Registrar for public inspection and become effective on registration. The IBC must hold an annual general meeting in The Bahamas.

Exchange Control 

If an IBC does business with a person resident in The Bahamas, or where a person who is deemed to be resident of The Bahamas for exchange control purposes desires to purchase shares, debts or securities in the IBC’s, they would be required to obtain approval from The Central Bank of The Bahamas. Otherwise, the IBC is free of the Exchange Control Regulations.

Power of Attorney

The Power of Attorney authorizes the person named therein to do or execute all or any acts or things on behalf of the IBC. A Power of Attorney is usually given when the Bahamian corporate service provider provides officer and/or director services for the IBC.

Bank Account

A bank account can be opened at any of the major international and domestic commercial banks subject to their special rules and regulations being observed. 

Usually, if the client provides the officers and directors for the IBC, he or she will provide the signatories on the account. Where the Bahamian corporate services provider provides officers and directors the client may still be the sole signatory on the account, however, permission must be sought from the Central Bank for Bahamians to sign on the account. 

Continuation of Foreign Companies

A Foreign Company may continue as an IBC regardless of any provisions in the laws of jurisdiction of the foreign company. In case of emergency or other urgency in the jurisdiction of a foreign corporation, a temporary continuation may be arranged by the Registrar. Continuation as an IBC can be used to protect the assets outside the foreign company’s home jurisdiction.

SUMMARY 

IBC’s facilitate the conduct of international business from The Bahamas in foreign currency. They are free from Exchange Control Regulation for foreign investors. They are tax-free in The Bahamas.

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

Bahamian Wills

While it is possible for a testator or testatrix to make a Will which deals with his or her assets located in The Bahamas care must be taken in the drafting of such a Will. Given that Bahamian Law will govern the validity of the testator’s Will in so far as it pertains to Bahamian immovables, a separate Will, (a “Bahamian Will”) is highly advisable in respect of immovable property located in The Bahamas.

Furthermore, it is likely that the Bahamian Will will be admitted to probate more swiftly than a foreign will.

It is important to bear in mind that when drafting a Will, a subsequent Will may revoke a prior Will. In light of this a Bahamian estate planning attorney will draft a Bahamian Will in a manner that avoids the revocation of prior Wills or limits such revocation to that which is intended to be revoked.

Likewise, it is recommended that that there be disclosure of any existing Bahamian Will to the legal representative drafting any later testamentary documents so that the later testamentary documents may be drafted with the existing Bahamian Will in mind. Also, it is recommended that the would-be testator’s legal representative consult a Bahamian Attorney-At-Law concerning the Bahamian Will before drafting the later testamentary document to ensure that Bahamian Law with respect to the formalities of a Will are noted.

By providing the following information, a testator can facilitate the drafting of a Bahamian Will:

    The full name of the person making the Will;

    The name and address of the executor and substitute executor;

    Whether the testator would like a trustee, this is especially useful if there are minor beneficiaries;

    Whether the executor and/or trustee will be remunerated;

    Who is to benefit from the Will and also their names and addresses;

    In what circumstances and in what portions are the beneficiaries to benefit;

    Which of the beneficiaries will receive personalty and which will receive land;

    Whether the beneficiaries are to take as joint tenants with rights of survivorship or   tenants in common;

    Who is to benefit if a beneficiary predeceases the testator or testatrix;

    Who will be the residuary beneficiary (or residuary beneficiaries if more than one);

    If there are minor beneficiaries who will be appointed guardian; and

    Provide copies of other testamentary documents.

PROBATE OF WILLS

As a matter of Bahamian Law the probate of any will admissible to proof may be granted in The Bahamas to the executor appointed either expressly by the will or impliedly by the will. It however, should be noted that although the testator may appoint as many executors as he wishes, no more than four will be permitted to prove the will at any one time.

This post is for your information only and nothing contained in this post is intended to constitute a legal opinion.  If you require any detailed advice please contact a Bahamian estate-planning attorney.  You may contact a Bahamian estate-planning attorney by clicking here.

Frequently asked questions regarding the incorporation of domestic companies and International Business Companies in The Bahamas

The post below merely answers various questions which are commonly asked regarding the incorporation of domestic companies (i.e. companies incorporated under the Companies Act) and International Business Companies (i.e. companies incorporated under the International Business Companies Act).  The information contained below is fairly basic.  I will post more detailed information regarding companies and other special purpose vehicles soon.  Don't forget, if you have specific questions that are not answered here, please post your comments and I will do what I can to answer them.  If you require specific advice, please do not hesitate to contact a Bahamian corporate lawyer or a Bahamian corporate services provider.  You can do so by clicking here. 1. How long does it take to incorporate an International Business Company (IBC)? 2. How much does it cost to incorporate an IBC? 3. How much does it cost to incorporate a Company under the provisions of the Companies Act? 4. How many directors must an IBC have? 5. Are the names of the shareholders of an IBC on a public register? 6. Are the names of the directors and officers of an IBC on a public register? 7. Does an IBC require a registered agent in The Bahamas? 8. How much does it cost to maintain an IBC? 9. How much does it cost to maintain a Company incorporated under the provisions of the Companies Act? 10. How long does it take to liquidate an IBC?

1. How long does it take to incorporate an International Business Company (IBC)?     It usually takes 24 to 48 hours to incorporate an IBC. 2. How much does it cost to incorporate an IBC?     The typical incorporation fee is around $700 (exclusive of disbursements).  Incorporation fees can vary slightly between corporate service providers. 3. How much does it cost to incorporate a Company under the provisions of the Companies Act?     The typical incorporation fee is around $1000 (exclusive of disbursements).  Again, incorporation fees can vary slightly between corporate service providers. 4. How many directors must an IBC have?     An IBC must have at least one (1) Director. 5. Are the names of the shareholders of an IBC on a public register?     The names of the shareholder(s) of an IBC do not appear on a public register. 6. Are the names of the directors and officers of an IBC on a public register?     The register of directors and officers must be filed at the Companies Registry. 7. Does an IBC require a registered agent in The Bahamas?     Yes, an IBC must have a registered office and registered agent in The Bahamas. 8. How much does it cost to maintain an IBC?     The typical annual fee to maintain an IBC is around $850 (authorised capital $50,000 or below) or $1500 (authorised capital more than $50,000). 9. How much does it cost to maintain a Company incorporated under the provisions of the Companies Act?     The typical annual fee to maintain a Company under the provisions of the Companies Act is around $950 (if Company more than 60% Bahamian owned) or $1600 (if Company less than 60% Bahamian owned).  Again, these fees can vary between corporate service providers. 10. How long does it take to liquidate an IBC?       A simple liquidation can be accomplished in approximately four (4) weeks.

Ancillary Relief in The Bahamas (Divorce Settlements)

Reaching a financial settlement

Ancillary Relief is the legal term used to describe the financial settlement made to each party when a marriage ends in divorce or nullification. As you may imagine, this can be a difficult and even combative part of the breakdown of a relationship, and coming to an agreement is sometimes not easy. Every case is different, and they can range from the relatively simple to the highly complex. They can involve shared assets, such as properties, savings, investments, pension funds and businesses, and obligations such as the payment of maintenance and the provision for children.

In general, the split should be fair, there should be no discrimination between husband and wife, or between the money-earner and the home-maker.

Financial Settlements and the Law

The law governing the Courts’ approach (and therefore the approach of attorneys advising and negotiating on behalf of clients) to financial settlements on divorce is based on the Matrimonial Causes Act 1973.

Personal behaviour is not considered on the basis of morality or emotional impact in financial proceedings. Infidelity or domestic violence is only taken into to account if it has a financial impact. Examples include disabling one of the parties and so reducing their future earning ability, or deliberately running up debts so as to prevent the other spouse from receiving their share of the matrimonial finances.

The aim of the law is to arrive at “fairness”. Although a starting point may be 50:50, the overall situation of the parties may mean a departure from equality in certain circumstances. For example, consideration is given to the facts in each case, including:

1. age of the parties (including life expectancy of each party in respect of future income) and length of the marriage

2. contribution both in financial and other ways (including bringing up children and inheritance)

3. resources and needs of the parties

4. standard of living during the marriage

If there are children, the first consideration is their welfare, including their housing needs, and this may impact on the overall financial settlement.

The court must ask itself whether these are fair and do not discriminate against one party bearing in mind all the circumstances.

An Example

(UK caselaw)
Recently a woman appealed to the Court of Appeal regarding the orders for ancillary relief made for her benefit following her separation from her husband. The couple had married in 1992 and had a child that year. They separated twelve years later. The wife had inherited a substantial sum which the couple lived off without working for the first five years of their marriage. In 1997 they used her capital to set up a car wash business, which the husband ran, paying a below-market rent to his wife.

When they separated, the couple’s assets were valued at a little under £1.4 million, which included the car wash business. The judge concluded that the yardstick of equality was applicable to the division of the assets and ordered the transfer of the building housing the car wash to the husband.

In the Court of Appeal, it was held that the assumption of equality of division of assets could be departed from. The assets had been disproportionately brought into the marriage by the wife. Whilst it made sense that the ex-husband should be able to continue in business, this did not mean that the property he rented should be transferred to him.

The court therefore concluded that the ex-husband should be allowed to continue to occupy the premises, paying rent at half the market rate, and that on the sale of the premises, the money received should be divided equally.

Each case is dealt with on its own facts, but then precedented cases are also taken into account.

SOME ISSUES

Maintenance

Since 1984, the courts have been required to assess whether the financial relationship between the parties can be terminated immediately. This can be done in a number of ways, not least by the payment of a capital sum in lieu of maintenance and/or by the imposition of a “clean break” order, which has the effect of barring a litigant from making any further claim for any form of ancillary relief.

Maintenance orders can be given on nominal or specific terms. Nominal terms are intended to keep the applicant’s rights to get maintenance alive while the former partner isn’t able to pay. The order can be reviewed any time to match the ongoing changes in financial capacity of the parties.

Child Support

This is often covered by maintenance agreements but can involve extra payments for school fees, holidays or medical treatment for children with special needs. Again it is well worth taking advice and sorting this out as much as possible if you are negotiating a financial arrangement with your spouse.

Property

Many people own residential property and when the time comes to making financial arrangements either at divorce or separation, there are a number of property related aspects that need to be addressed. Whilst this post does not deal with the appropriate division of jointly owned property, for which you need specialist advice, it does look at some practical steps.  If, of course, you require specialist advice, you may contact a Bahamian divorce attorney by clicking here.

1. If you own the property jointly with your husband/wife you should check if you own it as joint tenants or as tenants in common. If as joint tenants, then if one of you dies the other will inherit the property automatically (this is what is known as "right of survivorship"). If you own th property as tenants in common, then you may leave your share in the property (presumed to be half unless specified to be a different proportion) to someone other than the other owner. Tenants in common may have chosen this form of ownership to reflect different contributions. If only one of you is on the title deeds, when the relationship breaks down, the other person may well want their rights of occupation or potential claims to the property to be recognised.

2. If you own as joint tenants and want to convert to a tenancy in common (perhaps to prevent your spouse from automatically inheriting should you die before a settlement in finalised), then you must sever the joint tenancy.  For advice on how to do this, you should consult a Bahamian property lawyer.

3. One of the ways to deal with jointly owned property is to sell it. You should make sure that the Conveyancing attorney knows exactly what to do with the money (after repaying the mortgage and any selling costs). Usually it is held until agreement is reached on the division.

4. Or one of you could buy the other out. If that is what you decide to do, and can afford the extra borrowing, the buyer’s attorney can usually deal with the conveyancing for you. Don’t forget that Stamp Duty may be payable, but if the transfer is part of a court order (either on divorce or on separation), then the transfer is exempt.

5. Finally, don’t forget to review your will as your assets will have changed.

Family business

Upon the breakdown of a relationship, the parties also need to dissolve any partnership or business if an agreement cannot be reached, either if the business is owned jointly or where one of you owns or has an interest in a family business, the value of the business interest and what will happen to it will be a vital ingredient in any divorce settlement.

The court is now more likely to make an Order which may result in the need to either restructure the business or in some cases, sell it to put into effect the terms of any settlement. The Court’s primary function in relation to business and business assets consists of ascertaining the value of the business or business interest, then considering how the value of that interest should affect any settlement.

The main alternative business structures and valuation consist of the following:

Limited Liability Company
Valuation issues will normally be determined by the joint instruction by the parties of a specialist forensic accountant. The valuation process is designed to determine the price a purchaser would be willing to offer for the business or a particular interest in it.

Partnership
Similar considerations apply in valuing a partnership or partnership interest, but the position of other business partners and the terms of any partnership agreement which may exist, will also need to be considered. The valuation exercise will also look at the question of whether values should be ascribed to goodwill and often this is an area of some debate.

Sole trader
In certain cases the business of a sole trader might not be ascribed a value over and above the earning potential of the person running it, but this is not always the case. Where a sole trader is perhaps running several businesses or where a sole trader has other employees or contractors working for them, then the business may be ascribed a value on the basis that a purchaser might be expected to be able to continue it.

The value of the business interest

The value of the business interest is treated as an asset and will therefore form part of the “pot” when it comes to determining financial provision. Whether the business itself can be used to assist in paying any settlement will depend on the structure of the business and its liquidity.

If there are significant liquid assets and the business is owned exclusively by the family then it may be possible to fund the settlement or part of the settlement from liquid assets in the business. Detailed consideration would need to be given as to how the extraction of liquid assets from the company might affect its ability to successfully operate in the future.

The business might own other investments or liquid assets which could be used. Where there are non family member shareholders consideration would need to be given as to how they might be protected after any restructure.

Other possible ways of the business being used to raise all or part of the settlement might include a company purchasing its own shares, the repayment by the company of any loans to it by family members, commercial borrowing by the company, or the company increasing the remuneration paid to one or more family members, either by way of salary or dividends. The potential sale of shares in the business to an outside third party might be a further possibility. Whatever course of action you pursue, the valuation of a business can be contentious and requires careful handling.

An Example
(from UK case law)
An ex-husband valued the total assets (including the business, which he had run for 33 years) at £4.2 million. His ex-wife placed a valuation on the assets of £7.6 million, valuing the business at £5.3 million. She sought 50 per cent of the net assets plus school fees for the children. Her ex-husband offered 42 per cent of the net assets (£1.7 million), although this offer was later reduced.

Both produced expert witnesses to back up their respective valuations of the business, which was the main point of dissent. The experts differed, but the main point of contention was whether the valuation should be based on a multiple of six times ‘maintainable earnings’ or nine times.

The judge adopted a broad brush approach. Since there were insufficient resources for a ‘clean break’ arrangement to be financed, he ordered that the wife should receive £1.45 million plus periodical payments of £60,000 annually, child maintenance of £20,000 per annum and the cost of the school fees.)

How an attorney can help

It is sensibly advised that the division of finances on divorce should usually be by agreement between attorneys and endorsed in a Court Order rather than following an expensive and possibly protracted Court Hearing.

A Bahamian family law attorney should have a great deal of experience in achieving agreement on fair and workable financial settlements. They are very aware of the complexities and the emotional turmoil that can be involved, and aim to provide both a sympathetic ear and a guiding hand. Their approach should always be aimed at resolving the issues and reaching an agreement, but should be well prepared to take a tough line if reasonable terms cannot be agreed. 

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 please contact a Bahamian divorce lawyer.  You can contact a family law attorney in The Bahamas by clicking here.

Open for suggestions

Further to my post of yesterday, I wish to invite any viewers of my blog to post comments regarding any particular legal issues that you may have and I would be happy to provide a post on that specific issue.  I generally try to post a wide range of articles that I think will be of general importance to people in every day life.  Of course, I will never think of everything and I enjoy being able to research and write, so if you post questions about specific legal issues, we both benefit; I get to look at areas that I have not yet considered and you get free legal information.

Of course, I cannot answer specific questions which may relate to issues of fact, as that would require proper and comprehensive legal advice.  I can however, provide general answers to queries and I will do my best to answer your questions the best I can while remaining as general as possible.

If you require the advice from a lawyer in the Bahamas, you can always e-mail me.  I would be happy to advise you more thoroughly, if possible.