Central management & control for offshore companies – QC’s view
The issue isn’t where the company is controlled, but rather where the business of the company is controlled.
This means that it’s not just a case of looking where the shareholders of a company meet. Instead you look to see where the ‘controlling mind’ of the company’s business is to be found.
In the view of the QC the first point is to look at the constitution of the company to see who this gives the power to manage the companies business.
Usually this will be the Directors:
‘…the case law shows that, in a case where the constitution of the company in question gives power to the directors to manage its affairs, central management and control is to be found where the board of directors meets, unless the functions of the board have been usurped’.
Therefore provided the Directors have not been usurped from their position of control the decisions in the cases show that the place of residence is the place the board meets.
There will only be a usurpation where the directors have stood aside and abandoned their role so that their position had been usurped.
In most cases this will not apply. In particular the fact that the shareholders may be in the UK and may actually wield substantial influence would not prevent the management and control as being overseas. Simply having influence will not by itself constitute control.
How to establish an offshore company as non resident
The general gist is that if you want a foreign company to be non-resident, you need to ensure there is an active board which meets and takes decisions.
Some of the key points to bear in mind include:
(i) hold at least six board meetings a year; (Although three or four should be acceptable).
(ii) keep full minutes which show the directors exercising central management and control.
(iii) hold the meetings in a fixed place or at least usually in a fixed place. This is a practical point, not a legal one in that it is easier, if a challenge to residence arises, to be able to say “this company is resident in X” rather than “this company is not resident in any particular place and, in particular, is not resident in the UK”.
(iv). Do not hold any board meetings in the UK. Do not have a quorum of directors resident in the UK (to avoid accidental meetings) and, similarly, do not have a quorum present temporarily in the UK and deciding things.
(v) do not allow directors to participate in directors’ meetings by telephone or video conferencing facilities or by using e-mail from within the United Kingdom.
Similarly, where directors’ resolutions are passed in writing, don’t sign them in the UK.
(vi) if the board wants things done in the UK it needs to delegate the functions to be performed to people in the UK and then supervise what they do at their regular board meetings. As such the acts of delegation and supervision are then the acts of central management and control, and what is done in the UK is of a lower order, in the administrative category.