Contributed By Walkers Bermuda
The principal forms of corporate and business organisations in Bermuda are:
Both types of companies are private companies limited by shares. It is also possible to form both exempted and local limited liability companies (LLCs).
Corporate governance requirements in Bermuda are regulated by:
The Bermuda Monetary Authority
Further governance requirements are established by the Bermuda Monetary Authority (BMA), the regulator of the financial services sector in Bermuda.
As the principal provider of regulatory oversight, the BMA:
The BMA's principal mandate is to develop risk-based financial regulations that apply to the supervision of entities conducting banking, corporate service provider, digital assets, fund administration, insurance, investment, money service or trust business.
The Bermuda Stock Exchange
The BSX is the world's leading offshore fully electronic securities market, offering a full range of listing and trading opportunities for international and domestic issuers of equity, debt, depositary receipts, insurance-linked securities and derivative warrants.
The BSX is supervised and regulated by the BMA under the Bermuda Stock Exchange Company Act 1992 and promotes effective corporate governance standards through the Listing Regulations. As a self-regulatory organisation, the BSX has the statutory authority to adopt rules governing the conduct of its trading members and listed insurers including enforcement through disciplinary proceedings.
The BSX is a full member of the World Federation of Exchanges and acknowledged as meeting the highest regulatory operational standards. The BSX has a light but effective regulatory environment and is not bound by the European Listings Directive or the United States Securities Exchange Commission.
For companies with shares that are publicly traded on the BSX, the Listing Regulations contain certain corporate governance requirements. The extent of these will depend upon the nature of the issuer. For example, in the case of a "domestic issuer", being a local company, the Listing Regulations include mandatory provisions to be included in the company's constitution (being the bye-laws) in relation to, among other things, directors' interests and casual vacancies arising on the board of directors. Such requirements do not apply to "international issuers", being exempted companies or companies incorporated outside Bermuda, but such issuers are required, in certain cases, to inform the BSX of certain decisions of the board of directors.
The Listing Regulations do require the directors of all issuers to act in the interests of the holders of securities as a whole, particularly where the public represents only a minority of the shareholders or where securities are non-voting.
Further, if the BSX considers that any contravention of the Listing Rules is due to a failure by all or any of the directors to discharge their responsibilities, it may:
There are no official key corporate governance rules and requirements to be drawn out in Bermuda, but there are industry specific corporate governance codes (the "Industry Codes") which are issued by the BMA in its capacity as regulator.
In addition to Industry Codes, the Companies Act applies to all companies in Bermuda and codifies much of the corporate governance rules in general (with special rules for mutual funds) and, as stated, the BSX Listing Regulations provide guidance to BSX listed companies.
The following represent various Industry Codes active in Bermuda.
The Insurance Code of Conduct (the "Insurance Code")
Issued by the BMA, the Insurance Code, pursuant to the powers under section 2BA of the Insurance Act 1978 (the "Insurance Act"), established duties, requirements and standards to be complied with by insurers registered under Section 4 of the Insurance Act, including the procedures and sound principles to be observed by such persons in respect of, among other things, governance, risk management and internal controls.
Noting that insurers have varying risk profiles arising from the nature, scale and complexity of their business, the BMA follows the principles of proportionality, with Insurers with higher risk profiles requiring more comprehensive governance and risk management frameworks compared with those of a lower risk profile.
Failure to comply with provisions set out in the Insurance Code will be a factor taken into account by the BMA in determining whether an insurer is meeting its obligation to conduct its business in a sound and prudent manner. Compliance in accordance with the Insurance Code is part of the BMA's regular supervision and review process (see 6.1 Financial Reporting).
The Insurance Sector Operational Cyber Risk Management Code of Conduct (the "Cyber Code")
The Cyber Code issued by the BMA establishes duties, requirements, standards, procedures, and principles to be complied with in relation to operational cyber risk management for all Bermuda registered Insurers, Insurance Managers and Intermediaries.
The Insurance Manager Code of Conduct (the "IM Code")
The IM Code requires insurance managers to implement a documented corporate governance framework (including policies and processes and controls) which the BMA considers appropriate given the nature, scale, complexity and risk profile of the insurance manager. The IM Code also includes requirements and recommendations with respect to the composition of the board of an insurance manager and management of conflicts of interests. Insurance managers are expected to comply with both the letter and spirit of this Code.
The Corporate Governance Policy for Trusts (Regulation of Business Act 2011), Investment Business Act 2003 and Investment Funds Act 2006 (Issued January 2014) (together the "Regulatory Acts") (the "Regulatory Acts Policy").
The Regulatory Acts Policy apply to entities licensed under the Regulatory Acts and set out nine principles and related guidance which reinforce key elements of corporate governance.
The Regulatory Acts represent the minimum statutory criterion for companies to implement internal corporate governance policies and procedures. The Regulatory Acts Policy is taken into consideration by the BMA when assessing a licensee.
Corporate Governance Policy for Banks and Deposit Companies Act 1999 (the "Banking Code")
The Banking Code applies to deposit taking companies licensed under the Banks and Deposit Companies Act 1999 and sets out 13 principles and related guidance which reinforce key elements of corporate governance for banking entities.
Corporate Service Provider Business Act 2012
The BMA has published a Statement of Principles and Code of Practice which apply to all corporate service providers. The Code of Practice (read in conjunction with the Statement of Principles) provides guidance on the BMA's approach in interpreting the minimum criteria for licensing and the governance and risk management frameworks to be put in place by corporate service providers.
Digital Asset Business Act 2018 (the "DAB Act")
The BMA has published a Code of Practice with the objective of safeguarding Digital Asset Business (DAB) client assets by preventing fraud or misappropriation of digital assets in the issuance of DAB licences. The Code of Practice (read in conjunction with the DAB Statement of Principles prescribed by the DAB Act) interprets the minimum licensing criteria, including ongoing monitoring and compliance obligations.
Money Service Business Act 2016 (the "MSB Act")
The BMA has published a Statement of Principles and Code of Practice under the MSB Act. The Statement of Principles are relevant to the BMA's decision on whether to licence a money service business and provides guidance to licensed undertakings on the standards required under the MSB Act and other financial services legislation, as well as the best practice in the industry.
While there is no legal requirement for companies to report on environmental, social and governance (ESG) issues, there is a positive trend with Bermuda-based companies considering ESG challenges within their respective industries and business.
For example, the (re)insurance industry, which is Bermuda's main pillar of international business, is at the forefront of ESG awareness and actively responding to calls for responsible investment and financing. In particular, insurance-linked securities (ILS) are actively seeking ways to attract ESG-conscious investors. As ILS investment assets allow (re)insurance providers to transfer risk to the capital markets, ILS assets and ESG investment standards are becoming synonymous with the rapid expansion of the ILS sector and the opportunity for increased globally conscious investment practices.
The BSX, as the world's leading exchange for the listing of ILS, launched its "ESG Initiative" in 2019 with the aim of empowering sustainable and responsible growth for its member companies, listings and the wider community. The ESG Initiative aims to set guidelines for a company's operations that investors will use to examine prospective investments.
In April 2021, the BMA also announced the formation of a subject matter expert team focusing on innovation and climate change working throughout the licensing and supervision of innovative business model proposals to address climate change risk and the associated climate change gap. The team will also encourage ESG initiatives, including participation in the BMA's regulatory sandboxes, across the various regulated sectors.
As mentioned, while ESG considerations are not compulsory, they are becoming the rapidly accepted metric in Bermuda in qualifying as a respected global corporate citizen.
Note: The responses for the remainder of this chapter relate only to Bermuda companies, not to LLCs, which have different governance structures with "members" owning interests in the LLC and "managers" having responsibility for management of the LLC.
Board of Directors
The governance and management of a company is generally the responsibility of its board of directors.
Where a company is limited by shares, the directors typically answer to the demands and decisions of the shareholders (see 5. Shareholders).
Directors may exercise all powers of a company other than those required by the Companies Act or expressly reserved by the shareholders in accordance with the memorandum of association and bye-laws of the company.
Decisions reserved for the shareholders by the Companies Act include:
Board of Directors Meetings
The process by which the board of directors convenes and conducts board meetings and makes decisions are typically set out in the bye-laws.
Generally, decisions of the board are decided by way of a simple majority. However, the bye-laws may specify:
A quorum must be in attendance for the entirety of the meeting. Subject to the bye-laws of a company, a director who generally declares an interest in writing or declares an interest in the business to be conducted at a meeting at first opportunity may still be counted in the quorum and vote.
As an alternative to approving matters at board meetings, written resolutions of the directors are normally permitted by bye-laws and typically require a unanimous decision. It is also a common feature of bye-laws that written resolutions are to be considered effective on the date on which the last director signs or the resolutions are signed by a specified majority of directors.
General Meetings of Shareholders
See 5.3 Shareholder Meetings.
As a result of COVID-19, travel restrictions and a general shift to increased use of virtual meeting platforms, unless the bye-laws otherwise provide, the Companies Act permits board meetings and general meetings of shareholders to be held electronically. However, the Companies Act requires that all persons communicating can communicate with each other simultaneously and instantaneously.
The board of directors is a unitary board structure forming one-tier of both executive and non-executive directors.
Management of the company is typically the responsibility of the board of directors. Subject to the bye-laws, directors manage the business operation and strategies of the company and may delegate the day-to-day management of the company's business to executive officers (such as a chief executive officer or chief financial officer).
It is often the case that directors who specialise in key areas of the company, such as finance, marketing or executive management may lend their expertise to specific management decisions of the company.
Unless the shareholders determine otherwise, Bermuda companies are only required to have one director (an individual or legal person). The Companies Act does not restrict the number of directors, but the shareholders' reserve the right to determine the maximum number of directors at a general meeting or in accordance with the company’s bye-laws.
See 5.3 Shareholder Meetings.
Nationality and Residency Requirements
There are residency requirements for an exempted company. It must have one of the following:
There are no nationality requirements imposed on directors.
BSX Listed Companies
Listed companies must appoint authorised representatives or a sponsor to act as the primary point of contact with the BSX. Authorised representatives must be both members of the listed company's senior management and ordinarily resident in Bermuda. Exempted companies with a primary listing on another recognised stock exchange may appoint a resident representative under the Companies Act who will act at the company's sole authorised representative.
(Re)Insurers and DAB companies
Registered insurers and reinsurers are required to appoint a principal representative who is ordinarily resident in Bermuda and licensed DAB companies are required to appoint a senior representative who is ordinarily resident in Bermuda.
Appointment of Directors and Officers
Generally, the bye-laws govern the method and procedure for appointing a director. At the first statutory meeting of the company, the first director(s) is elected by the shareholders and thereafter in general meeting. This will typically occur at the annual general meeting (AGM) unless the requirement for holding AGMs has been dispensed with. Where a vacancy is left unfilled at a general meeting or a vacancy arises between AGMs (for example, as a result of resignation, disqualification or death of a director), the bye-laws often empower the directors to fill the vacancy.
Removal of Directors and Officers
Similar to the appointment of a director, the bye-laws govern the circumstances in which a director must vacate their office. In addition, the shareholders may, by an ordinary resolution passed at a special general meeting (SGM) may, effect the removal. Removal in this way is subject to the relevant director receiving at least 14 days' notice of the meeting and also being entitled to be heard at the meeting.
See 5.3 Shareholder Meetings.
There is no requirement in the Companies Act for companies to have independent directors.
Non-executive directors generally have the same duties as executive directors and are subject to the same potential liabilities. However, the courts may recognise their more limited involvement in determining the extent of any liability which may arise.
For rules and requirements surrounding the duties of directors and officers to disclose any conflicts or potential conflicts, see 4.8 Consequences and Enforcement of Breach of Directors' Duties.
The Companies Act prescribes the legal duties of directors and officers of a company. In exercising their powers and discharging their duties to the shareholders and company, directors must:
Common Law Rules
At common law, directors and officers owe fiduciary duties and duties of skill and care to the company.
The fiduciary duty is to act in good faith in their dealings with or on behalf of the company and to exercise their powers and fulfil the duties of their office honestly. This duty has four elements:
The duty of skill and care is a more positive obligation on a director and generally has three elements:
It should be noted that a director cannot absolve them self entirely of their responsibility by delegation to others.
The directors owe their duties to the company (being the shareholders as a whole) rather than any particular shareholder or group of shareholders.
See 4.6 Legal Duties of Directors/Officers and 4.8 Consequences and Enforcement of Breach of Directors' Duties.
The Companies Act provides that a director or officer of a company will be deemed not to be acting honestly and in good faith if they fail:
However, a director or officer is not liable to the above duties if they relied in good faith upon:
A director who fails to disclose the above matters (subject to bye-laws) is liable to a fine of USD1,000.
The company itself would bring a claim against a director for a breach of fiduciary duties and/or duties of skill and care. This would be a claim for damages to reclaim the loss arising from such breach. See 5.4 Shareholder Claims.
The Companies Act expressly provides that the bye-laws of a company may exempt or indemnify directors and other officers from any loss incurred by them while performing their duties provided such exemption or indemnity may not apply in the case of fraud or dishonesty by the director or officer.
There is no requirement in Bermuda law for directors or officers to be employees of the company and receive remuneration from the company.
Where applicable, the bye-laws may provide that the amount of directors' fees will be determined by the shareholders. However, the board of directors will often be delegated responsibility to determine the remuneration payable to them.
In relation to remuneration, fees or benefits payable to directors and officers, typically there is no requirement for disclosure. However, a BSX listed company must include the details within its prospectus of the total remuneration and benefits-in-kind paid to the director for the applicable financial year.
The company's memorandum of association and bye-laws will principally govern the relationship between the company and its shareholders, the requirements of such constitutional documents being supplemented by the specific requirements of the Companies Act relating to shareholders and shareholder matters.
In certain circumstances, there may be a shareholders' agreement setting out contractual rights and obligations of the company and the shareholders and governing the relationship between them.
Shareholders have minimal involvement in the management of a company and do not have a general right to interfere in the general management of a company.
Generally, shareholders do not have the power to direct the management of a company to take, or refrain from taking, certain actions in the business. However, the bye-laws may provide that decisions on certain business matters shall require the approval of the shareholders.
Although shareholders have a statutory right to require the board to convene a shareholders' meeting (see 5.3 Shareholder Meetings), they cannot exercise that right to put forward a resolution regarding the management of the business. If the shareholders wish to manage the control of business management, they must begin by amending the bye-laws of a company to restrict the authority of the board to exercise management control.
Shareholders must convene and make decisions regarding the governance and management of the company by way of an annual general meeting (AGM) at least once every calendar year, or the directors may convene a general meeting at any other time, known as a special general meeting (SGM). Shareholders may elect to dispense with holding an AGM for a particular year, for a specified number of years or indefinitely.
Notice of all general meetings must specify the place, day and time of the meeting and, in the case of a SGM, the nature of the business to be considered. Pursuant to the Companies Act, at least five days' notice of the meeting must be given although the bye-laws may prescribe a longer period.
If a company fails to hold an AGM within three months of the date it should have been held, it may apply to the Registrar of Companies (the "Registrar") to sanction the holding of a general meeting to correct the affairs of the company and a USD250 fee shall be paid. Any creditors or shareholders of the company may also apply for the winding up of the company in the absence of steps being taken to hold an AGM or rectify the omission.
Voting at General Meetings
Subject to the bye-laws of the company and any shareholder agreement specifying rights and restrictions attached to any class of shares, each shareholder of the company is entitled to one vote per share. The shareholder may choose to vote in person or by proxy.
The majority of issues for consideration at a general meeting may be decided on a simple majority or in accordance with the bye-laws. A poll vote can be demanded by any of the following:
Written resolutions are a viable alternative to a resolution of a company in general meeting, or to a resolution of a meeting of a class of shareholders (subject to the bye-laws). This method of passing resolutions may not be used when considering the removal of any auditor from office, or for the purpose of removing a director before the expiration of their term in office.
Notice must be given to all shareholders entitled to attend a meeting, except that any requirements prescribed by the bye-laws or the Companies Act relating to the length of notice period do not apply.
A resolution in writing will be valid as if it had been passed by the company in general meeting when the resolution is signed by:
Convening of SGM on Requisition
Shareholders of a company have the power to requisition the directors to hold a SGM. The directors are required to convene a meeting if, at the date of the deposit of the requisition:
There are a few bases of claim which exist for shareholders against the company or its directors.
Any shareholder may bring a personal action in respect of a wrong done to them as shareholders, whether committed by other shareholders or the company. This includes breaches of the company's memorandum of association or bye-laws, or an infringement of their personal rights.
Minority Shareholder Action
Pursuant to section 111(1) of the Companies Act, any shareholder of a company (regardless of shareholding) who complains that the affairs of the company are being conducted or have been conducted in a manner oppressive or prejudicial to the interests of some shareholders, including themselves, may make an application to the Bermuda court by petition that the company be wound up on just and equitable grounds.
The court may make an order as it thinks fit, whether to regulate the affairs of the company going forward, or for the purchase of the shares of the petitioning shareholder by the other shareholders of the company.
This is where a shareholder sues in the company's name and their act complained of is ultra vires the company. This type of action may also be brought against the directors who have breached their fiduciary duties. A derivative action cannot continue without leave of the Supreme Court.
There is no specific notification requirements for shareholders. However, for BSX listed companies, the directors or executive officers must advise the BSX if they become aware of any shareholder who:
Annual or other periodic financial reporting requirements vary from sector to sector.
In accordance with the Companies Act, the financial statements of a company are to be laid before a general meeting of the company, unless the requirement has been specifically waived under the Companies Act. The financial statements must include:
Before being produced at the general meeting, the balance sheet page must be signed by a director of the company. The failure of a director to take all reasonable steps to comply with the Companies Act in this regard will result in the liability to a fine of USD1,000.
Unless the company is a BSX Listed company, there is no requirement to file public financial statements.
BSX Listed Companies
The Listing Regulations provide that a company must provide shareholders with information by way of public announcement or circular that:
In satisfaction of the above, the issuer shall prepare audited annual accounts within six months of the end of the financial period to which they relate.
The BMA requires Groups, Class 4, 3B, 3A, E, D and C (re)insurers to file audited general purpose financial statements as part of their annual filings, which the BMA will subsequently publish. The BMA may exempt a (re)insurer from the requirement subject to certain conditions and in exceptional circumstances, such as permission for the BMA to publish legal entity aggregate statutory financial statements and group general purpose financial statements.
The individual classes of (re)insurers listed above must also file a Declaration of Compliance as part of their annual filings declaring the company has:
There are no specific Bermuda law requirements for a company to disclose its corporate governance arrangements.
When incorporating a Bermuda company, the following information must be filed with the Registrar:
Bermuda Registered Entities
Annual filings with the Registrar for Bermuda registered entities are minimal and are restricted to the Annual Statutory Declaration (this does not constitute financial reports), including payment of Annual Government Fees by 31 January each calendar year.
If there are any changes to the above information, the appropriate filing must be submitted to the Registrar.
Publicly Available Information
For a nominal fee, the public may request basic information about companies from the Registrar. A public search generally includes, but is not limited to:
For a nominal fee, members of the public may also request from the registered office of the company copies of its register of members and register of directors and officers.
In addition, members of the public may search the online Directors Register free of charge with respect to each director of a Bermuda company, which contains the following information:
Since March 2018 all Bermuda companies, except those exempted, are required to obtain information on their beneficial owners and maintain a beneficial ownership register at their registered offices. This information must also be filed with the BMA but is not publicly accessible.
For the purposes of the applicable legislation, a "beneficial owner" is:
Every company to which the above applies must obtain from every registrable person:
The register must be kept up-to-date and current, and any notification of any change must be filed with the BMA as soon as practicable, but not later than 14 days after the company is aware of the change.
In December 2018, the Economic Substance Act 2018 and related regulations (the "ES Laws") came into force with the purpose of ensuring that Bermuda does not facilitate the use of structures that attract profits but do not reflect real economic activity that is being undertaken in Bermuda.
An entity is deemed in scope of the ES Laws and requirements if it is a Registered Entity carrying out one or more Relevant Activities.
A Registered Entity is any Bermuda local or exempted/permit company, LLC, or any partnership with a separate legal personality.
A Relevant Activity means carrying on as a business as any one or more of the following:
If any Relevant Entity carries on a Relevant Activity it will be in scope of the ES Laws. However, a Relevant Entity which does not earn gross income in respect of the Relevant Activity for the relevant financial period will not be required to satisfy the Economic Substance Requirements (the "ES Requirements").
A Registered Entity complies with the ES Requirements if:
Each Registered Entity is required to file a declaration form no later than six months after the last day of each relevant financial period (the financial year as determined in accordance with its constitutional documents). The contents of the declaration form are not publicly accessible.
Unless the requirement to appoint auditors is expressly waived (for a particular period of time) unanimously by all shareholders and directors, either in writing or at a general meeting, the shareholders must appoint auditors. This takes places at each AGM or where the company has dispensed with the requirements to hold the AGM, at an SGM or otherwise in accordance with the bye-laws.
If there is a failure to appoint an auditor, the existing auditor continues in office until the shareholders appoint a successor. If the shareholders fail to do so, the appointment reverts to the directors.
A person, other than an incumbent auditor, cannot be appointed at a general meeting unless notice in writing of an intention to nominate that person has been provided at least 21 days before a general meeting. The notice must be sent to the incumbent auditor (unless this right is waived).
In the event an auditor resigns, vacates the office, is removed, the term of their office has expired or is imminent, no individual can accept appointment or consent to act as a replacement unless they receive a written statement from the previous auditor of the circumstances and reasons why, in the incumbent's opinion, they are to be replaced. Failure to provide the written statement within 15 days after the request, the proposed replacement auditor can accept the appointment or consent to be appointed as the new auditor.
Listed companies must prepare annual audited accounts within six months of the end of their financial year.
See 2.1 Key Corporate Governance Rules and Requirements for details of the various codes applicable to regulatory entities which relate to the management of risk.