Comment: Rose Chamberlayne,
Lawrence Graham
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A new type of
entity for use in offshore wealth presentation structures has been
created in the Bahamas and is expected to become law
imminently.
The so-called Bahamas Executive
Entity Bill was proposed by London law firm Lawrence Graham to the
Bahamas Financial Services Board as a solution to its clients’
concerns regarding who should be the decision makers within their
wealth structures.
The legislation creates a perpetual
entity (the ‘BEE’), designed specifically and solely to carry out
executive functions.
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By GlobalDataBEEs are “ideal”
shareholders
It is therefore ideal to act as
shareholder of a private trustee company (‘PTC’) or as a protector,
enforcer, advisory board or corporate director. Individuals,
companies or purpose trusts are not best suited for these roles,
with the result that when they are used in a structure, they are
the weak link from a succession, control and governance
perspective.
LG’s Private Capital team devised
the concept of an executive style entity while reviewing a client’s
trust structure.
The trustee of the client’s trust
structure was a PTC which held his businesses, personal assets and
homes. The PTC was owned by a purpose trust, the trustee of which
was a professional trustee, one of the client’s sons being the
enforcer. The PTC board comprised a mixture of family members and
trusted advisers.
The PTC had a contract with a
professional trustee company for the provision of the trustee
administration functions, the duties of which were overseen by the
board of the PTC.
Problems with the existing
structure
The client liked the PTC acting as
trustee of his trust, but was very concerned that the purpose
trust, with its professional trustee and his son as the enforcer,
owning its shares gave too much power to his son who could, in
effect, appoint and remove the directors of the PTC.
It also exposed his son to personal
liability as a fiduciary and the structure to unwelcome scrutiny
through the professional trustee.
The client considered alternative
existing PTC ownership options: the use of a company limited by
shares was unwelcome as this company would ultimately need to be
owned, raising succession and control concerns; a company limited
by guarantee could be dissolved at the action of its members which
would frustrate the client’s dynastic objectives of ensuring the
survival of the trust structure for several generations; and,
although a foundation was attractive, no existing foundation law
was considered ideally suited to the limited purpose of carrying
out executive functions, having been designed to hold ‘wealth’ for
persons in succession or purposes.
A BEE does not have any
shareholders, beneficiaries or enforcers. It cannot hold any value,
other than such sums as are necessary to carry out its executive
functions and meet any capital adequacy requirements, nor can it
own shares in another entity unless such entity also carries out
executive functions (eg, a PTC, protector/enforcer company or an
investment advisory company).
Removing unecessary layers
of ownership
To ensure that the BEE remains
compliant, it is a requirement for it to have a Bahamian licensed
financial and corporate services provider to act as its agent.
Furthermore, officers’ details are
not publicly available in the Bahamas and there is no requirement
for a Bahamian resident officer to sit on the board. A BEE is
therefore very attractive for those families for whom
confidentiality is key and for whom decisions must be made by the
right people.
The attractiveness of the BEE lies
in its ability to remove unnecessary layers of ownership at the top
level of wealth structures, to concentrate control in the right
people who have the assurance of limited liability and to generally
facilitate proper governance within the structure to avoid the risk
of family conflict damaging the family wealth.
The BEE is a welcome new addition
to wealth preservation structures, whether in the Bahamas or
elsewhere.
Rose Chamberlayne is a senior
associate in the private capital team at Lawrence Graham in the
UK.
