Seamless Succession: Alternative Tools for BVI Companies to Bypass Probate

Navigating the complexities of probate can be an expensive and disruptive process, delaying business activities and asset inheritance for beneficiaries. For shareholders of BVI companies, avoiding probate by using alternative estate planning tools is a smart way to ensure continuous business performance and seamless asset transfers. Here, we explore the different structuring options available to BVI companies for smooth succession planning.

Succession Planning through the Memorandum and Articles of Association

One way that BVI shareholders can make sure that their successors inherit the ownership and control of the BVI company is to plan for succession within the Memorandum and Articles of Association (M&A) of the BVI company. This approach involves creating different classes of shares that automatically transfer rights when the primary shareholder dies.

Here’s how it works: The BVI company, either at incorporation or through subsequent amendments to its MAA, establishes two (or more) classes of shares. One class holds rights while the primary shareholder is alive but loses those rights when they die. At the same time, the other class (or classes) gains rights when the primary shareholder passes away.

This method of succession planning ensures that the intended beneficiaries immediately and automatically gain control of the shares in the BVI company upon the death of the primary shareholder. They would also be able to appoint directors to manage and operate the company, thus avoiding any business interruption. The primary shareholder’s shares are surrendered upon their death through bespoke contractual terms and conditions set during the share subscription.

This strategy provides continuity in the company’s operations and a high degree of certainty for all stakeholders, both internal and external. By using the M&A to plan for succession, BVI shareholders can ensure a smooth transition of control and ownership, protecting the company’s future and preserving its stability.

Joint Tenancy with Rights of Survivorship

BVI Company shares can be held jointly with rights of survivorship. When shares of a BVI Company are jointly held with rights of survivorship, it means that if one joint holder dies, their shares automatically pass to the remaining joint holder(s) without going through probate proceedings. This method avoids costs, delays, and business interruptions associated with probate. It is important to point out, however, that joint shareholders have shared rights and responsibilities for the shares they own together, such as voting rights and equal economic benefits, which may not always suit your needs. Complications may arise if relations between 2 joint holders deteriorate, and reverting from joint to individual ownership typically requires joint holders’ cooperation. It’s important to note that probate procedures will eventually apply upon the death of the last surviving joint holder.

BVI Trust Structures

Trusts are a common and versatile way for BVI shareholders to avoid probate, with a reputation of being the most advanced and comprehensive succession planning vehicles in the BVI.

Trusts are often preferred by clients because they offer benefits that other succession planning options discussed in this advisory note cannot match. One such benefit is, the Virgin Islands Special Trusts Act (VISTA), which was designed for BVI trusts holding BVI company shares. In short, VISTA frees certain traditional trustee duties. As a result, when a BVI company’s shares are held in trust, the company’s directors can manage it independently, without the trustee’s interference, except in extraordinary circumstances.

The effect of VISTA is to remove the trustee’s obligation to monitor and intervene in the actions of the directors and the management of the BVI company owned by the trust.

VISTA trusts can last indefinitely, and the structure can include discretionary trusts, fixed interest trusts, charitable trusts, or purpose trusts, as long as they meet the statutory requirements.

A BVI company licensed under the BVI’s Banks and Trust Companies Act, or a BVI private trust company, must be one of the trustees of a VISTA trust. Individuals or non-BVI companies can act as co-trustees of VISTA trusts. The features of a VISTA trust described above are likely to comfort settlors who transfer their BVI company shares into trust, as they can still legally keep significant control over any disposition under BVI law.

Conclusion

BVI law offers several options for successful succession planning specific to an individual’s needs and circumstances. For further information about succession planning, please contact Corporate and Finance Partner Tamara Maduro.