There are two types of trust companies in Bermuda ¿ the private trust company ("PTC") and the licensed trust company.

A licensed trust company must be licenced to conduct trust business under the Trusts (Regulation of Trust Business) Act 2001 (the "Act") and is allowed to offer its services to the general public.

A PTC does not require licensing under the Act. It is usual for a PTC to be incorporated to act as the trustee of one or more private family trusts or connected trusts.

However, it can also be used to act as the trustee of commercial trusts. For example, financial institutions will sometimes use a wholly-owned PTC to act as trustee of 'in-house' collective investment trusts, such as unit trusts or mutual funds.

There may be tax or accounting reasons for using this structure or a desire to isolate any risk associated with such a structure.

A PTC cannot offer its services to the general public. The focus of this article will be on the PTC.

Until recently, a PTC could only be established as an ordinary Bermuda local or exempted company. On 29 December 2006, The Companies Amendment Act 2006 (the "Amendment Act") came into force, and this act provided a further option that of a PTC being formed as a company limited by guarantee (a "guarantee company").

A guarantee company is a company that does not have an authorised share capital, it does not issue shares, and thus does not have shareholders in the traditional sense. In a guarantee company there is no authorised share capital, and the members are not issued shares. Instead, the members of the guarantee company guarantee to settle any debts and liabilities up to a predetermined amount if the company becomes insolvent.

Advantages of a Bermuda PTC

A Bermuda PTC has several advantages, which is why they are increasing in their popularity. These advantages include:

• Cost effectiveness in set up and administration. Unlike many other jurisdictions, a Bermuda PTC is not subject to an expensive licensing process. In addition, if the PTC is established as a guarantee company, it is not required to pay the annual government fee to the Accountant General which is paid by local or exempted companies having a share capital within one month of their incorporation and every year thereafter.

• Many clients are hesitant to transfer legal ownership of significant assets to an institutional trust company in an offshore jurisdiction. The client may be more comfortable having assets owned and administered by a PTC that they have created, and perhaps control (depending on the tax and other factors effecting the settlor and beneficiaries.

• Many families are concerned about the disclosure of information regarding the family, their assets and their activities. Using a PTC makes it easier to control access to, and disclosure of, confidential information. This is particularly true where the board of directors of the PTC consists of the family and their trusted advisors.

• discretionary trusts require that the trustee exercise their discretion in the administration of the assets, for example the investment or distribution of trust assets. The PTC structure enables family members or trusted advisers to be involved in the decision making process by becoming directors or consultants to the PTC, rather than an institutional trustee making decisions regarding the trust assets.

• many institutional trustees are unwilling to hold certain types of assets. The PTC does not have similar constraints, and all of the assets can be administered by a single trustee.

PTC's are commonly used by wealthy families as a replacement for institutional trust companies or as part of their global planning. Bermuda continues to be a popular jurisdiction for the formation PTC's where assets are significant. The use of a private trust company in combination with either a purpose or discretionary trust has been extremely attractive for many persons ¿ notably those persons from civil law jurisdictions, for those wishing to establish a family office structure, or for those who do not wish to use public trust companies.