Intetrust examine the recent legislative changes that have brought about the introduction of hybrid companies in Samoa.
This legislation introduces an entirely new form of hybrid company, based upon a familiar and popular format, the Samoan International Company.
It has been brought forward so as to provide a solution to the difficulty of introducing the benefits of the civil law concept of the Foundation into common law environments, a difficulty based not upon the absence of legislation (for several have tried), but rather a jurisprudential difficulty: the lack of any precedent upon which common law courts could rely in resolving disputes concerning, or concerning the operation of, such entities and by the lack of any similar entity to which reference might be made.
The mere passing of a law merely to introduce Foundations is not the solution to the absence of such a vehicle in a common law jurisdiction.
The Foundation, an entity found in most civil law legal systems under one name or another, has a mixture of similarities to both a company: it is separate legal person, run by a board of directors, which owns and administers its own property; and to a trust: the property is held for the ultimate benefit of persons who have no legal ownership of the property – the beneficiaries, and in accordance with its own set of operating rules, as determined by the founder.
But an important, for some users, crucial difference between a Foundation and a Company is that a Foundation has no owner: although it is an entity in its own right, it has no shareholders or other categories of members.
Having quasi-corporate form, a foundation is a creature of statute; and thus differs from a trust (as known in almost all jurisdictions), which is merely a system of recognition of rights and obligations enforces by the courts – generally known as equity; and equity brings with it a far greater level of uncertainly, and a far higher level of responsibility to trustees, than statutes or the common law brings to companies or their directors: to many, another attraction of Foundations.
Like Foundations, companies too are creatures of statue; and therefore there is considerably greater flexibility in determining their form and the rules which govern them, and certainty of outcome – an advantage of which this legislation seeks to take.
This legislation aims to provide a corporate form, capable of being recognised in both common and civil law jurisdictions (as is Samoa’s long-established International Company – upon the law governing which key components of the new legislation are based), which has the benefits seen in Foundations of there being no ownership of the entity itself, through the removal of shareholders/members altogether, and of the entity having separate legal personality and ownership of its own property ( as with all companies), both of which points of law are stated in the Memorandum of Association.
But it also aims to do all of that whilst retaining the concept of the ultimate benefit of the company’s activities being for other than the company itself (the shareholders of a normal company, or the beneficiaries of a trust or Foundation), so as to ensure that the directors are able to be held accountable to another authority – the ultimate power of shareholders, and of beneficiaries.
This is achieved through the statutory requirement that all such companies can only be established, and that must always be administered, for the ultimate / eventual benefit of Charity, broadly or specifically defined, which also enables ultimate enforcement rights to vest in the Attorney-General, the defender of all Charities in common law jurisdictions.
To ensure that there is a suitable level of control over such entities within Samoa, the legislation provides that all such entities can only be established by, and must always be administered through, a Trustee Company licensed in Samoa, such as Intetrust Limited: which Trustee Company also always be possessed of the crucial document of these new companies: the Founder’s Rights Certificate; a documents which carries with it control rights similar to those of shareholders of companies, founders of foundations or protectors of trusts.
Samoa is the first, and so far only, jurisdiction to introduce this new type of hybrid company.
Well, it is envisage that these companies will be attractive to persons who would otherwise have been attracted to foundations, or who were shying away from a trust, or who wanted the benefit of corporate form but struggle with ownership issues:
These companies are formed and managed in the same way as a Samoan International Company; and thus are operated on a day-to-day basis by a Board of Directors pursuant to a Memorandum of Association, a Schedule of Powers and Articles of Association.
The Regulatory environment is provided by the Samoa International Finance Authority, SIFA, through an Office akin to that of the Registrar of International Companies.
These companies are required to keep accounts; and the accounts are required to be audited in Samoa by an auditor approved by SIFA.
These companies are required to have either a Secretary or Resident Agent provided by a Trustee Company in Samoa, such as Intetrust Limited; and their statutory records must be kept at the office of a Trustee Company in Samoa – where they are available for inspection in accordance with the governing legislation (and in a broadly similar manner to that found for International Companies).
These companies must at all times have a Director who, or which, is provided by a Trustee Company in Samoa: which Trustee Company must also be the holder of the Founder’s Rights Certificate.
The structure of the legislation is based upon the International Companies Act and follows its format.
As with all legislation, it is divided into Parts and Sections, Sub-sections and paragraphs.
As well as dealing with the usual things that are dealt with at the commencement of all legislation, this Part sets out the core requirement of the legislation, namely that a Special Purpose International Company may only be incorporated for the ultimate benefit of Charity.
It also includes the interpretation clause, which itself includes the definition of the ‘Founder’s Rights Certificate’, the Certificate which can only be issued to a Trustee Company and which grants the holder powers similar to those of the shareholder of a International (or other, more traditional) company, as well as the power to determine specific charities to benefit from the distribution of the company’s final surplus upon liquidation in the event that none are named in the company’s memorandum.
This Part also includes an important administrative provision, which allows such a company to make application for permission to act as Trustee of more than three trusts registered under the International Trusts Act without itself being licensed as a Trustee Company [the International Companies Act allows for up to three].
This Part deals with the administration of the Act and so creates the office of Registrar of Special Purpose International Companies, as well as Deputy and Assistant Registrars, and grants them their powers to inspect the records of these companies to ascertain compliance with the Act.
This Part also allows for the inspection of Registers kept at the Registrar’s office, but (for all general purposes) only with the prior written consent of the Trustee Company in possession of the Founder’s Rights Certificate.
It also provides for the registration of Registered Company Auditors and Official Liquidators - who are the same as those registered under the International Companies Act.
This Part deals with the Constitution of Special Purpose International Companies (hereinafter ‘SPICS’).
Incorporation of a SPIC is effected by a Trustee Company subscribing to a memorandum and lodging the same, together with the articles of association and the prescribed fee, with the Registrar.
The Registrar may require the lodging of a certificate by the Trustee Company certifying that all requirements of the Act have been complied with.
This Part requires that, after receipt of the Certificate of Incorporation by the incorporating Trustee Company, the SPIC must prepare and issue a Founder’s Rights Certificate to the Trustee Company named in the Certificate of Incorporation., which Trustee Company must provide the SPIC’s registered office.
The Memorandum and/or Articles of a SPIC may only be altered by resolution of the holder of the Founder’s Rights Certificate and the Memorandum may state a specific date upon which, or a specific event upon the happening of which, the SPIC shall commence to be wound up voluntarily.
Every SPIC is due for renewal on the 30th November of each year following that of its incorporation; this, too, is the same as with Samoa’s International Companies.
Every SPIC has all the powers of a natural person unless expressly excluded or modified by the Memorandum or the Articles.
A SPIC may adopt all or any of the Articles contained in Table A, Schedule 2 of the Act. The Act also provides a form of Memorandum and a schedule of Powers. If all are adopted in entirety, then the entire Memorandum and Articles can be a single page.
It is important to understand that having the Powers which it does, and having the status which it does, a SPIC can be a pure holding company and as such own any number of subsidiaries, incorporated in Samoa or elsewhere (but preferably Samoa, of course) through which business may be conducted. All such subsidiaries will, by definition, be ultimately beneficially owned by nobody.
No SPIC may enter into an agreement to do, or do, any act in or towards implementing a prohibited act; and a ‘prohibited act’ is defined as anything which would constitute the distribution of the capital of the SPIC other than to charity or for charitable purposes.
This Part provides that the name must have as part (and at the end of it) the words ‘Special Purpose International Company’ or its abbreviation (“SPIC”), or the word “Foundation” or its abbreviation “Fdn”.
This Part provides that a SPIC may issue debentures constituting a charge on any or all the assets of the SPIC. No debentures may be issued to bearer. SPICS are required to maintain a register of debentures at the registered office.
A charge created by a SPIC may be registered by the SPIC, or by any other person interested in the charge, by lodging with the Registrar a copy of the instrument creating the charge or a description of the property charged, the amount secured and the names of the chargees, within 42 days after the creation of the charge.
This Part deals with the management and administration of the SPIC.
This Part requires that a SPIC’s registered office be at the offices of a Trustee Company in Samoa, such as Intetrust Ltd.
It also allows for a situation where a Trustee Company no longer intends to provide the registered office for a SPIC, and enables the Registrar to cause the SPIC to be struck off if a replacement registered office is not appointed.
This Part provides that every SPIC must have at least one Samoa resident director, who or which must be an officer of, or a body corporate wholly owned by, a Trustee Company. There can be other directors elsewhere.
Consents to act as director, together with satisfactory evidence of identity, must be lodged with the Registrar – but are not open to public inspection.
This Part also provides that every SPIC must appoint at least one secretary, which may be a resident secretary (being an officer of, or a body corporate wholly owned by, a Trustee Company).
Where a company does not appoint a resident secretary then it must appoint a resident agent which must be the Trustee Company holding the Founder’s Rights Certificate, or an officer of, or body corporate wholly owned by, that Trustee Company.
All SPICS are required to keep at its registered office, registers of directors, secretaries, resident agents and a register of the holder of the Founder’s Rights Certificates, which registers shall be open to inspection with the prior written consent of the holder of the Founder’s Rights Certificate.
The Founder’s Rights Certificate is not transferable, but the Act does make provision for changing the holder from one Trustee Company to another, so as to prevent clients being held to ransom!
This Part deals with Accounts.
All SPICS must keep accounts and financial records satisfactorily and accurately reflecting the financial position of the SPIC.
Such accounts must kept at the registered office of the SPIC and shall be available for inspection by any director and the holder of the Founder’s Rights Certificate.
The Part requires that the directors deliver to the holder of the Founder’s Rights Certificate an audited balance sheet and profit and loss account of the SPIC at least once in every calendar year next after the year of incorporation of the SPIC.
The audit must be done by an auditor registered with the Registrar, who must be appointed by the SPIC within 90 days of its incorporation and the auditor shall carry out an audit of the company’s accounts in each audit period.
The Registrar has the power to require the holder of the Founder’s Rights Certificate to lodge with the Registry a copy of any report or further report or information provided by the auditor in respect of the relevant SPIC.
This Part ideals with Winding Up.
A SPIC may be wound up compulsorily or voluntarily and the provisions in respect of winding up are the same as under the International Companies Act, except that the property of a company is applied in satisfaction of its liabilities equally and then any surplus, unless the Articles otherwise provide, is to be distributed to such charity as the liquidator determines.
In the case of a compulsory winding up, a petition may be made by the Attorney General or by SIFA.
In respect of a voluntary winding up, the requisite resolutions to have the company wound up voluntarily are made by the directors.
A company is dissolved on the expiration of 3 months after the lodging by the Official Liquidator of an account showing how the winding up has been conducted and the property of the company disposed of.
SPICS may be struck off the Register for failure to renew, ceasing to comply with provisions relating to the holder of the Founder’s Rights Certificates, or to the registered office or resident director, or for failure to comply with any direction from the Registrar under the Act.
A SPIC may also be struck off at the request of the holder of the Founder’s Rights Certificate accompanied by a statutory declaration of all the directors to the effect that the SPIC no longer carries on business and has no outstanding liabilities to creditors and no assets.
The liability of every officer of the SPIC continues for a period of two years from the date upon which the company was dissolved and may be enforced as if the SPIC had not been dissolved.
This Part deals with Miscellaneous matters, such as the rights of charities, the rights of SPICS to accept further gifts and endowments, the powers of the court to grant relief, penalties and confidentiality.
The Part provides that SPIC documents may be lodged in electronic format and may be in any language (provided that if not in English a translation is also lodged).
The Part also provides for an ‘Emergency Trust’, a default provision whereby, on the happening of a ‘specified event’ (as set out in the Articles), the property of the SPIC becomes vested in the Trustee Company which holds the Founder’s Rights Certificate, such as Intetrust Ltd., upon trust for charity generally.
All SPICS are exempt from all income and stamp duty tax and are not subject to currency and exchange restrictions in Samoa.
The provisions of the Money Laundering Prevention Act, the Prevention and Suppression of Terrorism Act apply to every SPIC, and some relevant provisions of the Trustee Companies Act also apply, mutatis mutandis, to every SPIC.