The UK Economic Crime and Corporate Transparency Act 2023 – The Proposed Changes to Companies House Explained

What is the purpose of the Act and who will it affect?

On 26th October 2023 the Economic Crime and Corporate Transparency Act 2023 (ECCTA) passed into UK law, marking the most significant change to Companies House since its inception. Its leading principle is that Companies House will be afforded greater powers in a bid to tackle economic and financial crime and address other abuses of the register.

The changes will bring added responsibilities for new and existing directors, persons of significant control (PSCs) and any agents who file on behalf of a company, as Companies House will be able to impose sanctions for incorrect or misleading information, or if the company fails to comply with the new registration requirements.

Companies House plans to introduce measures from March 2024 onwards affecting the following entities:

  • private limited companies
  • public limited companies (PLCs)
  • limited liability partnerships (LLPs)
  • limited partnerships (LPs)
  • community interest companies (CICs)
  • overseas companies

Companies House published guidance in its blog on 22 January 2024 regarding the first set of changes coming into effect on 4 March 2024: Get ready for changes to UK company law – Companies House (blog.gov.uk)

What are the changes?

  1. Confirmation statements and registered office addresses – from March 2024

Every company, including dormant and non-trading companies, will need to file a confirmation statement at least once a year, even if there have been no changes during the review period.

Furthermore, to ensure information on the register is accurate and up-to-date, companies will need to provide an appropriate address for the registered office to which correspondence will be received by a representative of the company. Companies will no longer be able to use a PO box as a registered office address, and Companies House will have powers to query and challenge addresses it believes to be inaccurate and, more widely, information it suspects to be incorrect. The enforcement tools at its disposal include:

  • Financial penalties
  • An annotation on the company’s record
  • Prosecution
  • Strike companies off the register
  1. Statement of lawful purposes – from March 2024

When incorporating or registering a company, subscribers of that company will be asked to provide a statement confirming that the purpose of formation is for a lawful purpose, and that future activities will also be lawful.

  1. Identity verification – date of introduction TBC

Another significant change is the future introduction of identity verification for all PSCs and directors of a company, including companies already on the register. To deter those setting up companies for illegal purposes, verification will need to be done either directly with Companies House or by using an Authorised Corporate Service Provider (ACSP), such as solicitors or accountants. For LPs, this must be done solely through ACSPs to ensure that information is from a trustworthy source.

Companies House has confirmed there is not yet a date of introduction and more information is to follow. For PSCs and directors of existing companies, there will be a transition period once introduced to allow reasonable time for adjustment to the new requirements.

The Dixcart UK Legal department is an Authorised Corporate Service Provider (ACSP) and can assist with verification.

  1. Higher fees – date of introduction TBC

Companies House fees will be increasing in 2024 to cover the costs of the enforcement powers, although we await further guidance on what these fees will be.

  1. Software-only filing – date of introduction TBC

Over the next 2 – 3 years, Companies House plans to shift towards a system of filing by software-only, applying to directors who file accounts themselves as well as third party agents like solicitors.

  1. “Failure to Prevent Fraud”

Significantly, the ECCTA includes a new criminal offence which makes companies and partnerships liable for failing to prevent fraud by employees or representatives for the benefit of the organisation. Those who hold a position within the organisation of “senior manager” or higher will be liable for conviction if an economic crime is committed.

Further guidance is expected from Companies House as to when we can expect all measures to be implemented and updates will be released accordingly. For additional details see the gov.uk website.

For more information from us, or if you wish to discuss using an ASCP, please use our enquiry form or email us at advice.uk@dixcart.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

What is an Isle of Man 2006 Act Company?

The Isle of Man Companies Act 2006 (CA 2006) introduced what is commonly referred to as the New Manx Vehicle (NMV). Companies incorporated under the Isle of Man Companies Act 2006 provide a more modern and dynamic form of corporate entity than those constituted under the more traditional Isle of Man Companies Act 1931.

Whilst the NMV has been with us for almost 20 years, clients and their advisers often ask about the CA 2006 Company’s features and when they offer a more appropriate solution. We hope that this short overview offers a starting point, but always welcome any questions clients and advisers may have.

Why Incorporate your Company in the Isle of Man?

The Isle of Man is ‘whitelisted’ by the OECD in recognition of the Island’s commitment and leadership in improving transparency and establishing effective exchange of information in tax matters. The Island is globally regarded as a well-regulated offshore financial centre and enjoys strong relationships with all major banking institutions. Further, the Island offers a blend of business-friendly and politically agnostic government, enduring legislation, reliable Case Law and a very beneficial tax regime. Headline rates of taxation include:

  • 0% Corporate Tax
  • 0% Capital Gains Tax
  • 0% Inheritance Tax
  • 0% Withholding Tax on Dividends
  • The Isle of Man is in a customs union with the UK, and Isle of Man companies can register for VAT in the UK

For more a quick overview of the Isle of Man as a jurisdiction and why it is a great choice for incorporating your international Corporate Structure, please see the video below:

Features of the Isle of Man 2006 Act Company

The Isle of Man Companies Act 2006 offers an administratively streamlined corporate vehicle that significantly reduces the bureaucratic burden of operating an Isle of Man Company. For instance, the Act only requires simplified reporting and minimal meetings to sanction certain actions.

Isle of Man CA 2006 Companies also allow for greater flexibility in their Corporate Governance, for example, there may be a single individual or Corporate Director and there is no requirement for a Company Secretary. However, a Registered Agent must be appointed at all times, which you can read about here.

Further, you can now re-register an Isle of Man CA 2006 Company to a CA 1931 Company.

Common uses for NMV Companies

The CA 2006 Company’s Objects are not restricted, and therefore the entity can undertake any lawful activity required, subject to the Risk Appetite of the selected Trust & Corporate Service Provider.

Whilst the Company can pursue any activity, there some common uses of the NMV:

  1. Equity Holding
  2. Private Investment
  3. Luxury Asset Holding e.g. Superyachts
  4. Real Estate Holding

You can read more about Isle of Man Companies here.

How can Dixcart Assist?

Choosing the right Trust & Corporate Services Provider is vital to the success of your structuring. Dixcart Management (IOM) Ltd is a well-established Trust & Corporate Services Provider that is Licensed and Regulated on the Isle of Man and is a member of the Dixcart Group. The Dixcart Group remains proudly privately owned by the same family after more than 50 years.

Our long-standing industry presence underscores our proficiency in navigating the complexities of corporate management and governance.

Contact us

If you require further information regarding the use of Isle of Man Corporate entities or Trusts, please feel free to get in touch with David Walsh at Dixcart: advice.iom@dixcart.com

Alternatively, you can connect with David on Linkedin.

Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority

Offshore Trust Solutions for HNWI’s Moving to the UK

Reforming the UK’s Non-Domicile tax regime is an objective contained within the Labour Party’s policy platform. An incoming Labour Government is a distinct possibility at the next General Election, which is due to be held no later than 28th January 2025, but is widely expected to be held during 2024.

Labour have regularly discussed the intention to scrap the current Non-Domicile regime in favour of a modernised scheme for people genuinely living in the UK for short periods.

So, what do High-Net-Worth-Individuals (“HNWIs”) coming to the UK need to be aware of, and what structuring opportunities do they currently have open to them?

In this article, we take a brief look at how Offshore Trusts can be utilised to protect and grow the non-UK wealth of non-UK HNWIs coming to the UK to live and work. We’ll consider:

  1. An Overview of the Non-Domicile Regime
  2. What is an Offshore Trust?
  3. Offshore Trust Solutions for Non-Domiciled Individuals
  4. How Dixcart can Support Offshore Trust Planning?

1. An Overview of the UK Non-Domicile Regime

Domicile is a foundational Common Law concept recognised within countries such as Australia, Canada, India, USA and the UK. Domicile goes beyond nationality, residence or ethnicity and is defined by where the individual is considered to have their permanent home or have a substantial connection to.

An individual can only have one Domicile at any one time, which has relevance in determining the territorial law applicable to various matters such as those relating to areas of taxation, for example,  UK Inheritance Tax.

A UK Domiciliary is subject to UK taxes on their worldwide assets, income and capital gains on an Arising Basis; a system of taxation found in many other countries. In the UK, a person can acquire a UK Domicile in five broad ways, but the three most common are:

  1. Domicile of Origin
  2. Domicile of Choice
  3. Deemed Domicile

Non-Domiciled individuals that move to the UK will remain Non-Domiciled for so long as they have not acquired a Domicile of Choice or become Deemed Domicile.

Whilst the individual remains Non-Domiciled, there is no exposure to UK Inheritance Tax (“IHT”) on non-UK situs assets. Further, those who have a Non-Domiciled tax status can opt to be taxed on a Remittance Basis, which may provide tax efficiencies depending on the individual’s circumstances and in accordance with professional tax advice received.

As such, those Non-Domiciled persons have an opportunity to utilise a respected tax neutral jurisdiction, like the Isle of Man, to structure their non-UK affairs in an efficient manner​​​​ and optimise any potential returns.

As noted previously, the current Non-Domicile regime is likely to be subject to reforms in the medium to long term. For the time being, however, the tried and tested structuring options are available for Non-Domiciled persons to utilise and may be pertinent under any shortened or revised system going forward.

A mainstay of pre-arrival planning for Non-Domiciled HNWIs is the Offshore Trust.

2. What is an Offshore Trust?

A Trust is a fiduciary arrangement whereby an individual (the “Settlor”) transfers legal, but not beneficial or equitable, ownership of property/assets to a person or persons (the “Trustee”) to hold for the benefit of their chosen beneficiary or a class of beneficiaries (the “Beneficiaries”).  

The term, Offshore Trust, refers to a Trust that is settled and managed in a separate jurisdiction from the Settlor’s home country. In the instance of an Offshore Trust for a UK Non-Domiciled individual, this involves the settlement of a non-UK jurisdiction Trust and the appointment of non-UK Trustees. This renders the Trust subject to a foreign legislative, regulatory and/or tax regime, normally providing the Settlor and the Beneficiaries of the Trust with efficiencies.

You can read more about Offshore Trusts here.

The Trustees, often professionals, own and manage the Trust assets in accordance with the Settlor’s wishes and ordinarily for a specific purpose such as family wealth preservation, asset protection or tax optimisation. The Trust Deed details the arrangement and parties, acting as the constitutional document of the Trust.

You can read more about choosing your Professional Trustees here.

Importantly, Trusts are not incorporated entities i.e. they do not possess limited liability or separate legal personality like a company or corporation. For instance, it is the Trustees, and not the Trust, that can sue or be sued, contract with third parties and/or create charges.

3. Offshore Trust Solutions for Non-Domiciled Individuals

According to suitably qualified tax professionals, it is often advisable for High-Net-Worth, Non-Domiciled individuals to defer their UK tax Residency to allow for appropriate wealth planning to be implemented. Ideally, this means that any pre-arrival planning needs to take place prior to the start of the first tax year of UK Residence.

The concept of Clean Capital is particularly important with regards to the Non-Domiciled individuals’ pre-arrival planning. Among other things, Clean Capital describes income and gains received whilst non-UK Resident that can be remitted to the UK post tax residency without a tax charge. After the foreign Domiciliary becomes UK Resident, foreign income and gains arising are not considered Clean Capital and may be taxable on remittance to the UK.

In practice, the individual has a number of options open to them regarding the protection and investment of their non-UK assets, one of the most flexible that we regularly assist clients with, is the establishment of a Protected Trust, which can play an integral role in both pre-arrival planning and for those nearing deemed domicile status.

Protected Trusts

Introduced in 2017, a Protected Trust is a Trust settled by a Non-Domiciled individual before becoming Tax Resident in a new country. The main aim of such a Trust is to protect the foreign Domiciliary’s overseas assets from the tax regime of their new country of Tax Residence.

This structure normally involves the incorporation of an underlying Holding or Investment Company to undertake the active management of those settled assets.

It is common for the Trust to be settled with a nominal amount of cash initially, and for the remainder of the Clean Capital to be loaned to the Trustee by the Non-Domiciled individual. Thereby allowing the Trust Fund to be invested in non-UK situs assets and the foreign Domiciliary to receive loan repayments of Clean Capital without a tax charge on remittance. This is also true of any growth or income derived from these assets, which is also considered Clean Capital.

Further, provided that UK-source income is avoided, income and gains within the Protected Trust can compound free of tax, whilst the Trust falls under the Protected Settlement Regime. In principle, this will continue for so long as the Settlor remains Non-Domiciled, and the Trust Fund is not tainted.

If you would like to find out more about the nature and scope of Trusts, and common pitfalls, we have created a series of helpful notes on Isle of Man Trusts for your reference:

  1. Offshore Trusts: An Introduction (1 of 3)
  2. Offshore Trusts: Types and Uses (2 of 3)
  3. Offshore Trusts: Misunderstandings, Pitfalls and Solutions (3 of 3)

There is also this companion video presentation:

4. How Dixcart can Support Offshore Trust Planning

The Dixcart Group have been serving international clients for over 50 years and the Group remains proudly, privately owned by the same family. Our office in the Isle of Man has been in operation for over 30 years, reflecting our expertise and experience as professional Trustees and Corporate Service Providers.

The Isle of Man is a highly regarded OECD whitelisted jurisdiction with a long running track record in fiduciary and professional services. The Island is a centre of excellence for Private Client structuring and is particularly well suited to establishing Protected Trusts for people moving between jurisdictions, including moving to the UK.

At Dixcart Isle of Man, we specialise in services for HNWIs seeking to establish Trusts. Our approach to business is focused on maintaining high-quality, long-term client relationships, prioritising bespoke service over the quantity of clients we have.

Our Isle of Man team comprises of qualified Trust professionals and experienced senior staff, who are tax aware and always on hand to offer comprehensive support in actioning your Trust planning at every stage.

Get in Touch

If you would like to discuss how our Isle of Man office can support your Trust and Corporate planning, please get in touch with David Walsh or Glenn Blevins via:

advice.iom@dixcart.com

Alternatively, you can connect with David on Linkedin or Glenn on LinkedIn.

Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority

Guernsey

What Benefits do Guernsey Companies Offer for Family Offices and HNWI’s?

Guernsey, as an independent, self-governing jurisdiction, is a premier international financial centre, with an enviable reputation and excellent standards. It is one of the leading jurisdictions providing international corporate and private client services and has developed as a base from which internationally mobile families can organise their worldwide affairs through family office arrangements.

Factors contributing to and enhancing the status of Guernsey include:

  • A general rate of tax payable by companies of zero.
  • There are no wealth taxes, no inheritance taxes, no withholding taxes on dividends, no capital gains taxes and no VAT.
  • Individuals relocating to the Island can effectively elect to pay tax on their Guernsey source income only, capped at £150,000, or on their worldwide income capped at £300,000.
  • The Companies (Guernsey) Law 2008, the Trusts (Guernsey) Law 2007 and the Foundations (Guernsey) Law 2012, reflect Guernsey’s commitment to providing a modern statutory basis and increased flexibility for companies and individuals using the jurisdiction of Guernsey. The laws also reflect the importance placed on corporate governance.
  • Guernsey’s Economic Substance regime was approved by the EU Code of Conduct Group and endorsed by the OECD Forum on Harmful Tax Practices in 2019
  • Guernsey is home to more non-UK entities listed on the London Stock Exchange (LSE) markets than any other jurisdiction globally. LSE data shows that at the end of December 2022 there were 105 Guernsey-incorporated entities listed across its various markets.
  • Legislative and fiscal independence mean that the Island responds quickly to the needs of business. In addition the continuity achieved through the democratically elected parliament, without political parties, helps deliver political and economic stability.
  • A wide range of internationally respected business sectors: banking, fund management and administration, investment, insurance and fiduciary. To meet the needs of these professional sectors, a highly skilled workforce has developed in Guernsey.

FORMATION OF COMPANIES IN GUERNSEY

General information is detailed below outlining the formation and regulation of companies in Guernsey, as embodied in the Companies (Guernsey) Law 2008, as amended.

  1. Incorporation

Incorporation can normally be effected within twenty four hours.

2. Minimum Capitalisation

There are no minimum or maximum capital requirements. Bearer shares are not permitted.

3. Directors/Company Secretary

The minimum number of directors is one. There are no residency requirements for either directors or secretaries, but substance requirements should be considered.

4. Registered Office/Registered Agent

The registered office must be in Guernsey. A registered agent needs to be appointed, and must be licensed by the Guernsey Financial Services Commission, or there must be a Guernsey resident director.

5. Annual General Meeting

Members can elect not to hold an Annual General Meeting by Waiver Resolution (requiring a 90% majority).

6. Annual Validation

Each Guernsey company must complete an Annual Validation, disclosing information as at 31st December of each year. The Annual Validation must be delivered to the Registry by 31st January of the following year.

7. Audit

Members can elect for the company to be exempt from the obligation to have an audit by Waiver Resolution (requiring a 90% majority).

8. Accounts

There is no requirement to publicly file accounts, although they are required to be filed with the Guernsey corporate tax return. Proper books of account must be maintained and sufficient records must be kept in Guernsey to ascertain the financial position of the company at no greater than six monthly intervals.

9. Taxation

Resident corporations are liable to tax on their worldwide income. Non-resident corporations are subject to Guernsey tax on their Guernsey-source income.

Companies pay Guernsey corporate tax at the current standard rate of 0%. Income derived from certain Guernsey based businesses, such as utilities and financial services, may be taxable at a 10% or 20% rate.

Additional Information

If you would like additional information regarding the formation of companies in Guernsey and the fees that Dixcart charge, please contact: advice.guernsey@dixcart.com

Dixcart Trust Corporation Limited has a Full Fiduciary Licence granted by the Guernsey Financial Services Commission

A Comprehensive Guide to Company Re-domiciliation: Exploring the Legal Framework and Benefits in Cyprus

Introduction

In today’s globalised economy, businesses often seek favourable environments to expand their operations and optimise their corporate structures. Cyprus, known for its strategic geographical location and business-friendly regulations, has emerged as an attractive destination for company re-domiciliation. Through its accommodating legal framework and a host of advantageous provisions, Cyprus has positioned itself as a preferred jurisdiction for businesses aiming to relocate.

This article examines the intricacies of the re-domiciliation process in Cyprus, highlighting the key legal considerations and eligibility criteria. In addition, it sheds light on the array of benefits that await companies opting to make Cyprus their new home, including: its favourable tax regime, extensive network of Double Tax Treaties, and robust infrastructure of support services.

Legal Framework

The Republic of Cyprus is included in the list of jurisdictions that allow the re-domiciliation process including, the transfer of legal ‘seat’ of foreign companies in and out of Cyprus, according to the Companies Law, Cap. 113.

The re-domiciliation process does not involve the company’s dissolution but instead the company remains and is considered to be the same legal entity, albeit governed by the laws of the new jurisdiction.

Re-domiciliation into Cyprus

Eligibility

  • The Laws of the country in which the foreign company is registered must permit the re-domiciliation process and allow the foreign company to exist as a company registered in Cyprus;
  • The documents of incorporation of the foreign company (Articles or Memorandum of Association) must contain a continuation provision that allows the foreign company to exist under the legal regime of another jurisdiction. If no such provision of re-domiciliation exists, then the M&AA Memorandum and Articles of Association must be amended to include such provision;
  • If the foreign company carries out a licensed activity in the foreign jurisdiction, it will need to produce evidence of the license and satisfy the local licensing criteria for the relevant activity in Cyprus;
  • Cyprus Law does not recognise bearer shares, therefore the authorised share capital of the foreign company, after it’s transfer-in to Cyprus, will have to be registered shares;
  • The name of the foreign company under which it will continue in Cyprus, needs to end with the word ‘’Limited’’. Therefore, possible names will need to be chosen with which the foreign company will be able to continue to exist once re-domiciled to Cyprus. An application needs to be made, in advance, to the Cyprus Registrar of Companies to obtain approval of the proposed name/s. The approval will be valid for 6 months from  issue.

Benefits

  • Cyprus has a corporate tax rate of 12.5%
  • Simple tax regime that is fully EU and OECD compliant
  • The following sources of income (subject to conditions) are exempt from corporate income tax:
    • Dividend Income        
    • Interest income, excluding income arising in the ordinary course of business, which is taxed under corporation tax.          
    • Foreign Exchange (FX) gains, with the exception of FX gains arising from trading in foreign currencies and related derivatives.
    • Gains arising from the disposal of securities.            
  • Additional tax incentives for equity financing/debt restructuring and IP qualifying profits that can reduce corporation tax up to 80%
  • Well drafted laws on Corporate and Commercial matters
  • Cyprus has concluded more than 65 Double Tax Treaties with other countries.
  • Excellent advanced infrastructure of services with highly skilled professional support such as, legal and accounting services.

Additional Information

For further information about the attractive tax regime for individuals in Cyprus, please contact Charalambos Pittas or Katrien de Poorter at the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

UK Register of Overseas Entities and Update Statements

Introduction of the Register of Overseas Entities (ROE)

August 2022 saw the introduction of the Register of Overseas Entities at Companies House, with all overseas entities who own properties in the UK being required to submit an application to the Registrar at Companies House detailing their beneficial owners unless they are exempt.

This relates to all properties owned on or after:

  • 1 January 1999 in England & Wales,
  • 8 December 2014 in Scotland; and
  • 1 August 2022 in Northern Ireland

Update Statements

An update statement must be filed every year by all overseas entities on the Register of Overseas Entities. The update statement requires the overseas entity to confirm that all the information about the overseas entity on the register is still correct, and update anything that has changed.

What are the Implications of Not Filing Update Statements?

It is important to bear in mind that it is a criminal offence if an overseas entity does not file an update statement. The overseas entity ID will become invalid until such time as the record is brought up to date.

Timings

According to Government guidance, an overseas entities statement date is due within a year of the date that the overseas entity was registered, or within a year of the last update statement.

The overseas entity has 14 days from the “statement date” to file. After this, the filing will be considered to be late.

So for example, if the original application was registered on 22 September 2022 the first statement date will be 21 September 2023. The update statement will be due by 5 October 2023.

Overseas entities can find the updated statement by searching for the entity on the UK Companies House register.

What if nothing has changed?

An overseas entity must file an update statement even if there have not been any changes to the overseas entity and its beneficial owners during the update period. This confirms that the information on the register is correct.

What information needs to be reviewed and updated?

The overseas entity will be asked to review all the information shown on the register about the entity and its beneficial owners or managing officers. It must update any information that has changed.

The overseas entity may be asked to re-enter home addresses for individual beneficial owners and managing officers.

All information must be correct as at the date of the update statement.

Verification Checks

Verification checks must be completed on any information that is being changed and on any new beneficial owners or managing officers that are being added. Such information will need to be verified by a UK regulated agent, no more than 3 months before the date of the update statement.

We at Dixcart Legal are UK regulated agents and can assist with this process. Please contact us at: advice.uk@dixcart.com if you would like our assistance.

The verification process can take some time to complete and we therefore strongly recommend that you contact us well in advance of  the statement date.

What if someone is no longer a registrable beneficial owner or managing officer?

As part of the update statement the overseas entity will need to tell Companies House:

  • The date that any registrable beneficial owner or managing officer ceased being so, during the update period, and make sure that the information is correct as at that date.
  • About anyone that both became and/or ceased to be a registrable beneficial owner during the update period. The information provided must be correct as at the date that the registrable beneficial owner ceased being one.

Companies House fees

The Companies House fee for filing the update statement is £120.

What happens if the update statement is late?

If an overseas entity does not file the update statement in time:

  • It will be committing a criminal offence and could be prosecuted or fined.
  • Its overseas entity ID will not be valid and it will not be able to buy, sell, transfer, lease or charge its property or land in the UK.
  • A note will be added to the overseas entities’ public record stating that it has not filed its update statement.

Who can’t currently use the update service?

At present the following cannot use the update service:

  • Where there are any trusts involved in the overseas entity; and
  • Where any beneficial owners or managing officers have their personal information protected at Companies House.

In such instances the overseas entity needs to file the update statement on paper, even if it does not need to make any changes to the trust information.

Additional Information

If you require any addition information regarding or assistance with a registration or filing an update statement, please contact the Dixcart office in the UK; advice.uk@dixcart.com

Isle of Man

Employee Ownership Trusts: A Summary

This Article briefly summarises the potential advantages of an Employee Ownership Trust (“EOT”), and why the use of an Isle of Man Trustee could be beneficial.

We have a far more detailed Article on this topic, if you require additional information: Employee Ownership Trusts: An Introduction.

HMRC Open Consultation

Any discussion regarding EOTs with Non-Resident Trustees must start with reference to the HMRC Open Consultation on this subject, which closed on 25 September 2023. The current rules leave the potential for a Non-Resident EOT to escape UK Tax liability regarding onward sale to third party purchasers. Whilst there is no evidence of widespread offshore EOT abuse, HMRC feel that some refinement of these rules is required.

Although we eagerly await the outcome of the Open Consultation, we thought it would be a good opportunity to revisit the basics of EOTs, their advantages and underline the value that a properly licensed and regulated Isle of Man Trustee can add to bona fide EOT planning.

1. What is an Employee Ownership Trust and Why Use One?

An EOT is a method of facilitating the employee ownership model and involves transferring ownership of a business into a Trust for the long-term benefit of all Eligible Employees.

The UK Government has incentivised transferring a business to its employees via an EOT with notable tax exemptions for the exiting owner. Under an EOT, majority shareholders can sell greater than 50% of the share capital to the Trust, receiving tax-exempt proceeds.

The circumstances and objectives of both the exiting owner and the business will typically determine whether an EOT is an appropriate solution. Common drivers for EOT planning include; where private owners are considering succession planning, to support growth plans and/or upon initiating a new venture.

EOTs should not be viewed merely as tax-planning tools. Their establishment should genuinely benefit the ongoing success of the business and its employees. The holistic benefits are explored in the next section.

2. What are the Advantages of an Employee Ownership Trust?

The most prominent benefits are divided into three main categories, as detailed below;

i) Benefits for the Business

Studies and real-world case studies have shown that employee ownership leads to enhanced trading performance.

Key outcomes for the business include:

  • Lower Absenteeism
  • A Happier Workforce & Increased Staff Wellbeing
  • Lower Staff Turnover and therefore reduced expenses in areas like recruitment
  • Faster Employment Growth
  • Increased Productivity
  • Better equipped to handle challenging market conditions as the workforce has an ‘owner’s mindset’
  • No third party acquisition, therefore the existing culture, values, and operations are preserved
  • Acts as a natural catalyst for succession planning

ii) Benefits for Owners

Exiting owners have compelling incentives to sell to an EOT, chiefly the potential for a Capital Gains Tax exemption on the disposal of their shares (a saving of up to 20%).

An internal sale process, through an EOT, also offers numerous practical advantages:

  • No need to find an external buyer
  • The sale price aligns with an independent market valuation, avoiding lengthy third-party negotiations
  • Pre-determined Sale and Purchase Agreement offers opportunity to tailor terms
  • Involving employees in the transition process, especially incoming Board Members, ensures a seamless handover
  • Transitioning to an EOT acknowledges the workforce’s contributions and preserves the owner’s legacy

iii) Benefits for Employees

All Eligible Employees benefit from the company shares, held in their name, through the EOT. As such, EOT-owned businesses offer both financial and non-financial advantages to their employees.

Employees can access a tax-free bonus of up to £3,600 annually.

Beyond the bonus, Eligible Employees have a voice in the business and can benefit from future profit-sharing once the EOT’s funding commitments are met. This longer-term financial incentive means employees can benefit from the business’ growth, driven by improvements in their increased engagement and commitment, in turn leading to greater trading performance.

3. Why Use an Isle of Man Trustee for your Employee Ownership Trust?

Professional Trustee Option for Employee Ownership Trusts:

Selecting a Professional Trustee for your EOT fundamentally addresses various concerns related to trust management and risk mitigation; we consider the pros and cons of Lay and Professional Trustees in this separate article.

The general issues regarding the appointment of Lay Trustees include lack of Trust expertise, conflicts of interest, the administrative burden of meeting obligations, the requirement to be objective and independent in the exercise of their duties and a need to maintain a legal and regulatory awareness.

Choosing a Professional Trustee removes all of these pitfalls and safeguards the EOT from potential mismanagement and legal non-compliance.

Isle of Man Professional Trustees for Employee Ownership Trusts

As at time of writing, no Inheritance Tax (IHT) charges arise, on the transfer of the exiting owner’s shares to an EOT, and the EOT is also exempt from the IHT Relevant Property Regime. Even where the exiting owner, company and employees are UK Tax Resident Domiciliaries, there is currently nothing to prevent the use of Non-Resident Trustees. In fact, there can be very compelling non-tax reasons for choosing Non-Resident Professional Trustees, such as those located in the Isle of Man. However, it is important to acknowledge that each case needs to be considered on its own merits – as with all things Trust related, one size does not fit all.

Isle of Man Trustees, such as Dixcart, are required to be licensed under the Financial Services Act 2008 and the Regulated Activities Order 2011, ensuring consistent regulatory oversight by the Isle of Man Financial Services Authority. This oversight assures clients that these trustees adhere strictly to best practices in their EOT obligations. Comparatively, UK Professional Trustees require no Licence, and their Trustee services are not regulated.

The Isle of Man is globally recognised as an exemplary international financial hub, boasting a stable political, economic, and regulatory landscape. With deep roots in intricate Trust and Corporate planning, the Island’s financial services sector is populated by seasoned professionals.

The Isle of Man and UK are separated by the Irish Sea, meaning Isle of Man Professional Trustees are truly independent from the EOT-owned UK business. However, The Isle of Man’s proximity and transport links mean that Trustees can promptly attend crucial UK meetings, offering an ideal blend of autonomy and accessibility.

4. How Can Dixcart Help with Employee Ownership Trust Planning?

Dixcart Isle of Man have been assisting with owner-managed businesses, complex Trust arrangements and intricate employee share ownership structures, for over 30 years – therefore, we are exceptionally well placed to assist with Employee Ownership Trusts.

By leveraging Dixcart’s expertise and quality focused services, we can; deliver an effective bulwark between the business and its ownership, providing checks and balances on the business, assurance against conflicts of interest and ensure that the rights and interests of the beneficiaries are always the first priority.

Get in Touch

If you would like to discuss how our Professional Trustee services can augment your Employee Ownership Trust planning, please feel free to get in touch with David Walsh at Dixcart: advice.iom@dixcart.com

Alternatively, you can connect with David on Linkedin.

If you’d like to read more on  this topic, in greater detail, it’s available here: Employee Ownership Trusts: An Introduction.

Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority

Employee Ownership Trusts: A Complete Overview

The HMRC Open Consultation on the Taxation of Employee Ownership Trusts and Employee Benefit Trusts has just closed as at 25 September 2023 and includes a portion dedicated to the examination of Trustee Tax Residency – particularly the use of Non-Resident Trustees for Employee Ownership Trusts (EOTs).

Whilst there does not appear to be evidence of widespread abuse of offshore EOTs, HMRC feel there is still scope for offshore EOT planning to go beyond the intentions of Parliament and the purpose of the incentives available to EOTs. Therefore, some refinement of the rules may be in order to obviate the potential for escaping UK Tax liabilities that would be otherwise due on subsequent sales to third parties.

Whilst we eagerly await the outcome of the Open Consultation, we thought it would be a good opportunity to revisit the basics of EOTs, their advantages and underline the value that a properly licensed and regulated Isle of Man Trustee can add to bona fide EOT planning.

In this article we cover the following topics:

  1. What is an Employee Ownership Trust?
  2. What are the Advantages of an Employee Ownership Trust?
  3. Why use an Isle of Man Trustee for your Employee Ownership Trust?
  4. How Can Dixcart Help with Employee Ownership Trust Planning?

1. What is an Employee Ownership Trust?

Building upon the Nuttall Review’s recommendations, the Finance Act 2014, enacted by the UK’s Clegg-Cameron Coalition, was designed to incentivise the employee ownership model. Its chief objective was to foster a more responsible, diversified, and consequently, robust economy. A sentiment that has been supported by the current Prime Minister and Chancellor, Rishi Sunak and Jeremey Hunt, who are currently considering reforms to encourage employee ownership in the UK to boost the economy.

This concept is not unique to the UK and broadly similar company models exist all over the world, albeit there may not be comparable tax incentives. For example, the United States’ Employee Stock Ownership Plan (ESOP), France’s Société coopérative de production (SCOP), Australia’s Employee Share Schemes (ESS) and any number of other workers cooperative or share purchase models.

An EOT is one method of facilitating the employee ownership model. EOTs are a restricted form of EBT that is settled by a Company’s Founders or current owners and involves transferring ownership of a business into a Trust for the long-term benefit of all Eligible Employees.

The UK Government has incentivised transferring a business to its employees with notable tax exemptions. Under an EOT, majority shareholders can sell greater than 50% of the share capital to the Trust, receiving tax-exempt proceeds. The agreed sale amount is based on a business valuation carried out by an independent expert. Without a third-party buyer, this amount should reflect what the business can feasibly pay over an acceptable period.

Many owners choose a full 100% sale, while some keep a minority stake in the company for various reasons— ensuring legacy, ongoing income, to pass on the capital to loved ones as part of their personal Estate or even to make the sale more affordable for the business. It is important to understand that any subsequent disposal of retained shares to the EOT will not avail of the tax exemptions. If a minority stake is retained, provision should be made to protect shareholder interests from events, such as dilution.

In essence, the EOT functions as a Trust, comprising a Settlor, Trustees, and Beneficiaries. You can learn more about the basics of Trusts here.

Party to the TrustDescription
SettlorPerson(s) disposing of their Controlling Interest in the Company (i.e. more than 50% of the voting and equity rights).
TrusteesCan be sourced internally from Directors and employees of the Company, or externally by engaging independent Professional Trustees. Some EOTs may call for a mix.
BeneficiariesAll Eligible Employees of the company. This is a term defined within the Act as an employee or office holder of a Trading Company or principal company of a Trading Group. There are strict equality requirements.

The EOT facilitates indirect ownership of the Company’s shares. While Trustees legally own the shares, eligible employees hold the equitable title, enabling them to benefit from dividends, profits, and voting rights without direct share control. This provides benefits like administrative simplicity and increased stability.

EOT planning is undertaken for many reasons and circumstances and objectives will typically determine whether an EOT is an appropriate solution. Common drivers include where private owners, whether entrepreneurs or a family business, are considering succession planning, to support growth plans or upon initiating a new venture. However, EOTs should not be viewed merely as tax-planning tools. Their establishment should genuinely benefit the ongoing success of the business and its employees. The holistic benefits are explored in the next section.

2. What are the Advantages of an Employee Ownership Trust?

Driven by the UK Government and promoted by organisations like the Employee Ownership Association, employee ownership is now the UK’s leading SME ownership model. In 2022, there was a 37% increase, with half of all such businesses transitioning since 2021. From just 17 in 2014, the number of EOTs is now well over 1,000 and includes prominent firms like ARUP Group Limited, Adventure Forest Group Limited (Go Ape), and famously, the John Lewis Partnership PLC.

There are many benefits of employee ownership facilitated by EOTs, but simplicity I have divided the most prominent them into three main categories.

i) Benefits for the Business

The UK Government’s promotion of employee ownership stems from a core belief in its power to foster a resilient economy. This is grounded in the Nuttall Review’s assertion that incentivizing employees leads to enhanced trading performance. Key outcomes include:

  • Lower Absenteeism
  • A Happier Workforce & Increased Staff Wellbeing
  • Lower Staff Turnover
  • Faster Employment Growth
  • Increased Productivity

The EOT model speeds up employee engagement, typically translating into increased profitability and reduced expenses in areas like recruitment. It also improves the Company’s resilience, better equipped to handle challenging market conditions because the workforce now has a direct stake in the outcome, or an ‘owner’s mindset’.

Selling to employees via an EOT means the business’s existing culture, values, and way of operating can be preserved. In contrast, an external third-party might seek to integrate or change the business to fit their own strategies or corporate culture – possibly even placing the existing employees at risk of an exercise in rationalisation or contract renegotiations. This continuity is especially valuable for SMEs where the founding owners have played pivotal roles in the company’s governance, strategy, and overall trajectory from inception. Further, many SMEs do not have a comprehensive succession plan; EOT planning can often serve as a timely catalyst for undertaking succession planning, preparing the next generation of leadership for their roles.

The bespoke nature of an EOT sale offers a great deal of flexibility, from financing options to handover periods. Often, the sale price is spread over several years and is paid out of the business’s profits. Depending on the circumstances, this may also allow the Company to gear in a way that better aligns with the long-term interests of the business and its employees e.g. speeding up the route to profit-share by limiting the levels of debt financing required.

In essence, an EOT, under apt circumstances, is a robust strategy to ensure a business’s enduring success and stability.

ii) Benefits for Owners

Exiting owners have compelling incentives to sell to an EOT, chiefly the potential for a Capital Gains Tax exemption on the disposal of their shares.

This saving of up to 20% is particularly compelling in the face of a reduced Business Asset Disposal Relief (previously named Entrepreneurs’ Relief). The cumulative limit on the lifetime allowance has fallen from £10m to £1 million for qualifying gains flowing from disposals on or after 11 March 2020.

An internal sale process through an EOT offers numerous practical advantages:

  • No need to find an external buyer.
  • The sale price aligns with an independent market valuation, avoiding lengthy third-party negotiations.
  • Pre-determined Sale and Purchase Agreement offer opportunity to tailor terms.
  • Involving employees in the transition process, especially incoming Board Members, ensures a seamless handover.
  • Transitioning to an EOT acknowledges the workforce’s contributions and preserves the owner’s legacy.

This approach provides the exiting owner clarity and certainty on aspects that there is typically less control over in traditional trade sales, such as the transaction terms, sale price, and exit date etc.

The arrangement of funding for the EOT sale can also be highly customised. Options include seller financing, external debt financing, engaging investors, or using the company’s retained earnings; a hybrid approach is common to optimise the outcome for all. However, the method of financing requires careful consideration and should ideally be advised.

In the right circumstances, an EOT sale offers owners an efficient exit strategy, granting more control over the sale, whilst also ensuring a lasting legacy.

iii) Benefits for Employees

All Eligible Employees benefit from the company shares held in their name through the EOT. As such, EOT-owned businesses offer both financial and non-financial advantages to their employees.

First and foremost,under the Finance Act 2014, employees can access a tax-free bonus up to £3,600 annually. The conditions for this bonus, as defined in s312B of the Income Tax (Earnings and Pensions) Act 2003, include:

  • Participation Requirement: All employees, including those overseas, and in any company within a group structure, must be eligible for any qualifying bonus award at the point the award is determined.
  • Equality Requirement: Employees must participate on the same terms. Variables like remuneration, service length, and hours worked can determine the qualifying bonus. The equality requirement is infringed if the scheme wholly or mainly benefits directors or top earners.
  • Office Holder Requirement: Within an individual company payments will not be qualifying if directors or office holders and other employees connected with them exceed 2/5 of total employees.

HMRC’s Open Consultation considers key issues regarding the Income Tax-free bonus. Notably, the Employee Ownership Association points out that due to inflation, the real value of this tax-free bonus has decreased since 2014. They suggest a current appropriate limit should be £4,600+.

Beyond the bonus, Eligible Employees have a voice in the business and can benefit from future profit-sharing once the EOT’s funding commitments are met. This longer-term financial incentive means employees can benefit from the business’s growth, driven by improvements in their increased engagement and commitment, in turn leading to greater trading performance.

While the EOT benefits all Eligible Employees, the strict requirements do not prevent the business running other initiatives. For example, provision can be made for key staff to directly buy company shares outside of the Trust. This offers more individualised approach to recognition, aiding talent retention.

It is vital that employees are well-informed about the EOT and the incentive structure. The business should take a proactive approach to education, which can include regular communication from the Trustees and management regarding timelines and mutual benefits.

The business can choose to establish an Employee Council to facilitate optimal communication between the workforce and Trustees. The Employee Council represents the interests of the Eligible Employees, giving them a voice and a means to be informed about and influence the EOT’s activities. Specific rights and powers can be reserved for the Council within the EOT’s constitutional documents. For example, the power to veto certain actions, approve certain decisions or have the right to be consulted on certain matters. Alternatively, the Council’s role might simply be advisory in nature.

Finally, trade sales to external parties can be fraught with uncertainties. Conversely, the transition to an EOT is more straightforward as the employees are the purchasers, and they already possess a deep understanding of the company’s operations, culture, and vision, ensuring business continuity and hopefully stable growth.

In the appropriate context, transitioning to an EOT offers advantages not just to the business and the exiting owner, but also to all Eligible Employees. This structure can address talent retention and inflation-related wage concerns, promoting a resilient economy and a more equitable society.

3. Why use an Isle of Man Trustee for your Employee Ownership Trust?

The Trustees appointed to administer the EOT will hold Legal Title to the EOT Shares and owe the Beneficiaries a blend of Trustee Duties and Fiduciary Duties. These legal duties can be onerous and carry a level of liability. Particularly pertinent duties that must be considered, include:

  • To maintain and act in the interest of the Beneficiaries
  • The requirement to avoid conflicts of interest
  • To exercise reasonable care and skill
  • To understand and carry out their obligations in line with the terms of the Trust
  • To act fairly and with impartiality in their capacity as Trustee

While it’s common for EOT Trustees to be individuals or an external Professional Trustee, some businesses opt for a SPV to serve as a Private Trust Company (PTC). When this route is chosen, Trustees become the Directors of the PTC. While the PTC structure offers Limited Liability, safeguarding the Trustee Directors’ personal assets from legal action targeting the PTC, it does not provide an absolute shield. For example, in cases of criminal liability, failure of Fiduciary Duties or Gross Negligence etc. the Trustees can face personal, or even joint and several, liability.

Acting as a Trustee is a serious undertaking that can be complex and must be fully understood prior to appointment. Selecting the right Trustees for an EOT is crucial due to the potentially long-term nature of the appointment. Typically, candidates can be categorised into Lay Trustees and Professional Trustees. You can read more on the general differences between Lay and Professional Trustees here.

Lay Trustee Options for Employee Ownership Trusts:

Employee Trustees may be considered for as they are well placed to direct insight into the day-to-day operations and challenges of the business, bridging communication between the workforce and the Trust. Further, this appointment can provide an opportunity to develop talent to form part of the wider succession plan. Therefore, an Employee Trustee may add value in strategic decision-making and potentially promote an EOT-aligned culture, whilst preparing them for future responsibilities.

Businesses often also consider appointing Board-level Trustees. In particular, Non-Executive Directors can offer a balanced perspective on the strategic mind of the company, providing Board representation for the Trust and acting with increased independence.

Exiting owners may also be inclined to take up Trustee roles or appoint close associates, anticipating a retention of influence over the business. While this can initially seem logical, especially for Founders who deeply care about their company’s trajectory, it carries pitfalls. Ongoing control and influence for the exiting owner can hinder the business’s evolution and negate the genuine benefits of transitioning to an employee-owned model.

The HMRC Open Consultation considered exiting owner appointments and recommends limiting the participation of former owners and their close associates to a minority role. Any breach of this after disposal would be a disqualifying event, leading to an immediate CGT Tax charge to the trustees, or the former owner if within the first year following disposal.

However, the appointment of any Lay Trustee isn’t without challenges:

  • Trust Expertise: Lay Trustees might not have prior experience in Trust governance, fiduciary duties, or corporate oversight which require training and ongoing CPD commitments. This could mean a steeper learning curve, which can lead to errors or inefficiencies.
  • Conflicts of Interest: Employee or exiting owner trustees may find themselves in situations where the best interests of the Trust conflict with the immediate interests or sentiments of their colleagues or the Board. For instance, the exiting owner may have personal financial interests or other agendas that could conflict with the best interests of the Eligible Employees or the business’s long-term success. Further, whilst a NED is more independent, they are still employed by the company and far closer than an external party may ever be.
  • Administrative Burden: Serving as both an employee or NED and a Trustee can be demanding, especially when balancing professional and Trustee responsibilities.
  • Objectivity and Independence: A deep-rooted connection with the business is a double-edged sword. It can aid in understanding nuances but may also hinder unbiased decision-making. Further, where exiting owners or Board Members act alongside employee Trustees, it is important to acknowledge that these parties may tend to dominate important debates and decision-making, owing to strength of character and experience. Further, EOT Trustees will naturally face pressure from members of the business, which can make it difficult to maintain impartiality or to make unpopular but necessary decisions.
  • Legal and Regulatory Compliance: Trust governance often involves complex legal and regulatory responsibilities. Inexperienced Lay Trustees might not be familiar with these areas, potentially leading to non-compliance or legal issues.

Professional Trustee Option for Employee Ownership Trusts:

Selecting a Professional Trustee for your EOT fundamentally addresses various concerns related to trust management and risk mitigation. This choice safeguards the EOT from potential mismanagement and legal non-compliance by employing a third-party specialist whose core focus is trust governance.

A Professional Trustee, being entirely independent, guarantees impartial and unbiased decision-making, which is paramount in safeguarding the interests of the EOT beneficiaries and ensuring robust governance. They play a pivotal role in mediating conflicts, leveraging their extensive experience, and providing a fresh, external perspective to strategic planning.

Equipped with specialised systems and methodologies for efficient EOT management, they devote undivided attention to trust administration, ensuring no conflict with other roles and responsibilities. Importantly, unlike Lay Trustees, a Professional Trustee can deliver a continuous and stable relationship with the EOT in perpetuity, especially when a Trust Services Provider with low staff turnover is chosen, fostering a consistent, long-term business connection.

Isle of Man Professional Trustees for Employee Ownership Trusts

As at time of writing, no IHT charges arise on the transfer of the exiting owner’s shares to an EOT and the EOT is also exempt from the IHT Relevant Property Regime. Therefore, even where the exiting owner, company and employees are UK Tax Resident Domiciliaries, there is currently nothing to prevent the use of Non-Resident Trustees. In fact, there can be very compelling non-Tax reasons for choosing Non-Resident Professional Trustees, such as those located in the Isle of Man. However, it is important to acknowledge that each case needs to be considered on its own merits – as with all things Trust related, one size does not fit all.

Isle of Man Trustees, such as Dixcart, are required to be licensed under the Financial Services Act 2008 and the Regulated Activities Order 2011, ensuring consistent regulatory oversight by the Isle of Man Financial Services Authority. This oversight assures clients that these trustees adhere strictly to best practices in their EOT obligations.

Furthermore, the Isle of Man is globally recognised as an exemplary international financial hub, boasting a stable political, economic, and regulatory landscape. With deep roots in intricate Trust and Corporate planning, the island’s financial services sector is populated by seasoned professionals.

The Isle of Man and UK are separated by the Irish Sea, meaning Isle of Man Professional Trustees are truly independent from the EOT-owned UK business. However, its proximity and transport links mean that Trustees can promptly attend crucial UK meetings, offering an ideal blend of autonomy and accessibility.

4. How Can Dixcart Help with Employee Ownership Trust Planning?

Dixcart Isle of Man have been assisting with owner-managed businesses, complex Trust arrangements and intricate employee share ownership structures for over 30 years – therefore, we are exceptionally well placed to assist with Employee Ownership Trusts.

By leveraging Dixcart’s expertise and quality focused services, we can deliver an effective bulwark between the businesses and its ownership, providing checks and balances on the business, assurance against conflicts of interest and that the rights and interest of the beneficiaries will always be the first priority.

Get in Touch

If you would like to discuss how our Professional Trustee services can augment your Employee Ownership Trust planning, please feel free to get in touch with David Walsh at Dixcart: advice.iom@dixcart.com

Alternatively, you can connect with David on LinkedIn

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

Swiss Director Obligations: Why It Is Important to Get It Right

The Reputation of Swiss Companies

Swiss Companies have an unrivalled reputation. It is important to understand the obligations of being a director of a Swiss company. It is these duties on which the foundation of the integrity of Swiss companies is based.

Amidst the global landscape of corporate governance, Swiss companies adhere to a standard model where the Board of Directors plays a central role. However, specific Swiss legislation dictates that a company must be represented by at least one individual domiciled in Switzerland, authorised to sign on its behalf.

Alternatively, this requirement can be fulfilled by two Swiss residents with joint signatory powers. While companies themselves cannot be appointed as directors in Switzerland, understanding the precise duties and liabilities of these appointed individuals remains critical.

The role of the director is to represent the company and to make all legal acts that may arise within the corporation’s purpose, but what are his/her duties and liabilities?

The Duties of Swiss Directors

Duties of Care

The board collectively and the directors individually are obliged to conduct their responsibilities with the prudence and diligence of a judicious businessperson, considering the company’s interests and leveraging the skills expected for their role.

Duty of Loyalty

Directors must prioritise the company’s best interests over their own or others, refraining from personal gain through corporate opportunities and promptly disclosing any conflicts of interest to the board.

Duty of Confidentiality and Transparency

Maintaining confidentiality is paramount, especially concerning sensitive company information. Directors are obligated to provide shareholders with all vital company information and reports on the financial standing and business operations.

Equal Treatment of Shareholders

Directors must afford the shareholders equal treatment in like circumstances.

General Management

Directors hold the responsibility of steering the company, establishing policies, and devising strategies to achieve the company’s objectives. They are also in charge of ensuring regulatory compliance, managing records, preparing annual reports, and maintaining relations with authorities.

Financial Management and Compliance with Statutory Obligations

Directors are accountable for the company’s financial management, entailing budget preparation, overseeing accounts, and making pertinent financial decisions. They must adhere to legal obligations concerning the company’s creditors, including the timely initiation of shareholders’ meetings, and proposing restructuring measures as needed, with requisite reporting to the court in cases of over-indebtedness.

The directors of a Swiss limited company owe their duties to the company as well as to the shareholders and to the creditors.

The Liabilities of Swiss Directors

The members of the board of directors, any delegates of the board and any persons engaged in the management of the company (including shadow directors), are personally liable to the company, its shareholders and creditors for any damage caused by intentional or negligent violation of their duties.

In addition to civil liability, the Swiss Penal Code provides for criminal liability of directors in the event of, amongst others; false statements, artificial reduction of assets to the prejudice of creditors, disclosing commercial secrets, mismanagement, and the failure to comply with accounting regulations.

Directors may be held responsible for decisions made or actions taken by the company and be exposed to financial and legal risks.

Financial risks: directors may be liable for financial losses suffered by the company due to their negligence or misconduct. They may also be liable for the company’s tax, social security, and trade debts.

Legal risks: directors may be liable for illegal acts committed by the company, such as violations of company law, competition law or environmental legislation and for non-compliance with labour and employment laws and regulations.

Tax and social security risks: directors may be liable for the payment of taxes and social security contributions due by the company and for errors in the reporting of taxes and social security contributions.

Summary

In the complex landscape of corporate governance, the adherence of directors to their designated duties is paramount. By conscientiously upholding ethical standards and fulfilling their roles diligently, directors can steer clear of potential liabilities while safeguarding the integrity and stability of their respective companies. Staying abreast of the latest legal developments and seeking professional legal advice are pivotal for directors to effectively discharge their obligations. For further information and expert guidance, reach out to Dixcart Switzerland at advice.switzerland@dixcart

Listed Company Services Provided By Dixcart in Guernsey

LISTED COMPANY SERVICES PROVIDED BY DIXCART IN GUERNSEY

Background

Dixcart Trust Corporation Limited (‘Dixcart’) provides a suite of outsourced professional company secretarial services for listed companies that trade on worldwide stock exchanges. This includes the provision of a professional company secretary who will also advise on current governance matters.

What Services Can Dixcart Offer?

  • Provision of a chartered governance professional (ACG) (Chartered Secretary) with 20+ years of listed company experience with clients trading on stock exchanges in the UK, Canada, USA and Australia.
  • Management of Board & Committee meetings: pre-meeting discussion with Chairs; draft agendas; circulate meeting materials; attend and act as recording secretary; prepare initial ‘Matters Arising’ list from the meeting; and prepare minutes.
  • Assistance with ongoing regulatory compliance for the listed company.
  • Assistance in preparing AGM meeting materials.
  • Monitor corporate governance policies to ensure best practices are being maintained.
  • Undertake annual Board assessments and tabulate results in a confidential manner.
  • Administer compensation plans.
  • Function as warrant agent for the listed company.
  • Function as the liaison for the listed company with the registrar and professional advisors.
  • Minute Book custody in both hard copy and electronic format.
  • Provision of an administrative substance expected of operating companies.

Private Companies

Many private companies require their internal governance to be at the same level as that of a listed company, especially where the shareholders have invested significant financial capital. Dixcart can work with management and the Board of these companies to determine and implement an appropriate level of corporate governance policies and processes. This is particularly of interest to a private company that is seeking an exchange listing as part of its short to medium-term corporate strategy.

Attendance at Meetings

Many Board and Committee meetings are held by video conferencing platforms. However, as the Guernsey office is only a short flight to London and has excellent transport links to other key UK airports, this enables easy access to European and international connections, therefore attendance in person for Board and Committee meetings is easily facilitated.

What Advantages Does Dixcart Offer?

Dixcart provides effective and efficient solutions to listed company clients, using experience gained over 20+ years.

The cost-effective solution for a listed company is to outsource the company secretary role until there is a requirement to engage a full-time in-house person. Dixcart is well positioned in this market to provide an experienced company secretary, whether as an officer position or in an advisory role.

Further Information

For further information on this topic please contact your usual Dixcart adviser or speak to Shaun Drake in the Guernsey office: advice.guernsey@dixcart.com.