This column, which is normally in Lifestyle every other Monday, appears here today due to its particular importance to business.

The Ministry of Finance is in the process of reviewing the conditions under which overseas companies or persons may solicit business in Bermuda. In particular, the Ministry is interested in those overseas companies that are managed by Bermuda-based corporate service providers or engage Bermuda-based agents.

The concern is that such companies may be carrying on business in Bermuda as thought they were approved "permit companies" without having undergone the scrutiny that properly registered "permit companies" must face.

Similar concerns have been raised in the past regarding Bermuda based mutual fund administrators retained to manage overseas mutual funds. After discussion with industry representatives, the Companies Act 1981 (the "Act") was amended to clarify the circumstances under which fund administrators may be hired.

However, there still appear to be other situations in which overseas companies may be holding themselves out as carrying on business from Bermuda although the company is only administered by a Bermuda corporate provider. Such an overseas company is in effect using Bermuda as its place of business.

Similarly, there is concern where an overseas provider engages a local agent in Bermuda. Where such an agent transacts business locally for the principal, there is strong weight for the view that the overseas company as the principal is carrying on business in or from within Bermuda.

In both cases outlined above, the companies in question require a permit. That is because any overseas company wishing to carry on or engage in trade or business in Bermuda must apply for a permit from the Minister of Finance in order to do so under the Act.

The Act defines an overseas company as any company incorporated outside Bermuda, other than a non-resident insurance undertaking. The Act restricts the proposed trade or business of the overseas company to such acts or activities as would typically be carried out by a Bermuda exempted company. For example, carrying on business with persons outside Bermuda, doing business in Bermuda with exempted companies in furtherance only of the business of the overseas company outside Bermuda or related banking business.

Part XI of the Act sets out the requirements for granting a permit to an overseas company. The overseas company must first publish an advertisement in an "appointed newspaper" no more than three months prior to the application announcing its intention to apply for a permit, specifying its name and stating the trade or business it proposes to engage in or carry on in Bermuda. The prescribed application form must be sent to the Minister of Finance through the Bermuda Monetary Authority along with a copy of the advertisement and the requisite application fee.

Documents describing the overseas company (certified when appropriate) must accompany the application. These include:

the certificate of incorporation;

constitutional documents;

address of the registered office of the overseas company outside of Bermuda;

a list of the names and nationalities of the directors of the overseas company;

the amount of authorised and paid-up capital of the company; and

a copy of the latest audited financial statements.

Information on the ultimate beneficial owner of more than five percent of the overseas company must also be provided to the Minister of Finance. The Minister must be advised of the names and addresses of persons resident in Bermuda who are authorised to accept service of process on behalf of the overseas company and the name and address of the principal representative appointed for the overseas company in Bermuda.

Once a permit has been granted to the overseas company, a copy must be filed with the Registrar of Companies and the overseas company is then referred to as a "permit company". The permit company is subject to the terms of the Act and is required to pay such fees as are prescribed by the Act immediately upon granting of the permit and in March of each subsequent year.

A permit company must include on all letters and correspondence sent from its place of business in Bermuda in connection with its business in Bermuda, its name, place of incorporation and the principal place in Bermuda from which it carries on such business.

The company must keep at its principal place of business in Bermuda, such records of its acts and financial affairs as will show adequately the trade or business in which it is involved.

If records are kept at a place outside of Bermuda, there must be kept in an office in Bermuda such records as will allow the directors to ascertain with reasonable certainty the financial position of the company at the end of each three-month period.

The regulation of permit companies seeks to ensure that Bermuda continues to be a well-regulated jurisdiction with sufficient supervision of all entities operating here.

Until policy guidelines are published or the Act is amended to address the issue, an overseas company should act with caution. Companies using a Bermuda based agent or one which is managed by a Bermuda corporate service provider and which holds itself out as carrying on business from Bermuda using a Bermuda address, should itself obtain a permit.

@EDITRULE:

Fiona Bada is an Attorney in the Corporate Law Department of Appleby Spurling Hunter. Copies of Miss Bada's column can be found on the Appleby Spurling Hunter website at www.applebyglobal.com . This column should not be used as a substitute for professional legal advice. Before proceeding with any matters described herein, persons are advised to consult with a lawyer.