The Turks and Caicos Islands (TCI) are a British overseas territory located about 500 miles south-east of Miami, Florida at the southern tip of the Bahamas chain. The main industries are tourism, financial services and fishing. The last 15 years has been a period of prolonged economic growth. The current population is estimated to be about 30,000, of whom 80% live on the most developed island, Providenciales.

TCI is a zero-tax jurisdiction; there are no income or capital taxes of any kind. Significant customs duties are imposed on imported goods and stamp duties apply to local real estate transactions. The local currency is the US dollar. TCI has no exchange-control regulations.

TCI's law is a mixture of English common law, some UK statutes that have been extended in whole or in part to the Islands, and local Ordinances. A number of international conventions to which the UK is a party have been extended to TCI. The court system is based on English law and procedure. The final court of appeal is the Privy Council in London.

The usual TCI corporate vehicle for international business is the exempted company limited by shares, commonly known as an IBC.

Corporate governance reforms

TCI has an extensive regulatory regime covering almost all aspects of the local financial industry designed to impose financial, professional and corporate governance standards. Banks, company formation agents, insurance companies (including insurance brokers and agents), trust companies, investment dealers and mutual fund administrators are subject to stringent licensing and regulatory requirements.

The basic regulations governing banks, insurance companies and professionals, and trust companies have been in place since the early 1990s. Additional regulation of company formation agents, investment dealers and mutual fund administrators has been introduced in recent years, along with more stringent anti-money-laundering provisions, limitations on banking and corporate secrecy laws, and structures for the exchange of information with overseas regulatory agencies.

These changes have come about in response both to local needs and the influence of international organizations, such as the OECD, the Financial Action Task Force and the IMF, and their worldwide campaigns to expand financial and corporate transparency and to promote better corporate governance. Those reforms have included:

• the establishment of TCI's main financial regulator, the Financial Services Commission, as an independent statutory body with its own funding;
• the enactment of statutory provisions to immobilize bearer shares in TCI companies; and
• the enactment of stringent anti-money-laundering provisions in the Proceeds of Crime Ordinance and subsidiary legislation and the establishment of the Money Laundering Reporting Authority.
• the enactment of the Overseas Regulatory Authority (Assistance) Ordinance 2001, which authorizes the TCI Financial Services Commission to assist an overseas regulatory authority in the exercise of its regulatory functions. Regulatory functions do not include "functions directly or indirectly relating to assessing, imposing or collecting taxes of any kind". In qualifying circumstances, that assistance may extend to requiring a TCI company manager to disclose the beneficial owners of a TCI exempt company. This requirement makes for enhanced financial and corporate transparency;
• the imposition of greater due diligence/know-your-client requirements on company managers and formation agents. There is no obligation in the ordinary course to disclose beneficial ownership of TCI IBCs to unauthorized third parties, but TCI company managers are now statutorily obliged to hold on file details of beneficial ownership of companies for which they provide a registered office, including notarized photo ID, references and address confirmation.
• response to OECD, FATF and other international initiatives. In a March 2002 letter to the OECD, the TCI's then chief minister committed TCI to the principles of effective exchange of information in tax matters and transparency. The chief minister emphasized that it was essential to establish a level playing field among all the OECD member countries and those non-member jurisdictions with which TCI is materially in competition in the provision of cross-border financial services; TCI was, he said, determined to protect its economic interests and fiscal autonomy, and developing and maintaining a level playing field was critical to those interests.

(TCI has been satisfactorily reviewed by the FATF and has never appeared on any FATF black list.)

• the EU Savings Tax Directive. In line with other British overseas territories, TCI has implemented the EU savings tax directive by passing the Retention Tax Ordinance, which imposes a withholding tax on the accounts affected. TCI is not a major centre for holding international funds (although TCI corporate entities are widely used internationally) and the Retention Tax Ordinance is not expected to have a big impact on the territory.

Company agents and resident representatives

Every TCI IBC is required to have a registered office in the Islands, where a licensed company agent maintains the company's corporate records. In addition, every TCI IBC is required to appoint a person resident in the Islands who will accept service of legal process on behalf of the company.

Shareholders' rights

Holders of at least 15% of the issued shares of a company are entitled to requisition a general meeting to propose a special resolution. Sometimes, the articles of association (bylaws) of the company will allow a smaller number to requisition a meeting.

Quorum and voting requirements for shareholders' meetings is dictated by the articles rather than by statute. Typically, the quorum requires the presence (in person or by proxy) of the holders of not less than 50% of the outstanding voting shares.

Decisions that require a special resolution (75% approval of the shares represented at the meeting) include:

• alteration of the memorandum of association (charter) or the articles of association (bylaws);
• changing the company's name;
• appointment of an inspector to examine the company's affairs;
• members agreeing to have the company wound up by the Court;
• members agreeing to have the company wound up voluntarily;
• sale of business or property of a company in, or proposed to be in, voluntary liquidation in return for shares or interests in the acquiring company; and
• purchase by a company of its own shares, if the articles do not otherwise authorize the manner of purchase.

The articles will typically allow the proposal of resolutions by shareholders. However, 15% of the shareholders, exercising their statutory power to requisition the meeting, can do so for the purposes of proposing a special resolution.

Shareholders have the right to question directors and officers and, in accordance with the voting rights attached to their shares, elect the board.

Shareholders have a right to inspect the register of members and the register of directors and officers. Shareholders holding at least 15% of the shares of the company may apply to the court for the appointment of an inspector of the company's affairs. The directors and officers are obliged to produce all books, accounts and documents relating to the company to the inspector, who is entitled to examine the officers and agents of the company under oath. The members may by special resolution (without application to the court) appoint an inspector who will have the same powers as one appointed by the court.

After an appropriate resolution is passed at a general meeting , shareholders can sue in the name of the company (a true derivative action). An individual shareholder can bring proceedings against directors by way of a representative action (ostensibly on behalf of all the shareholders) with the company joined as a nominal defendant.

Protection of minority shareholders

Minority shareholders in TCI companies have limited rights. The holders of at least 15% of the issued shares can require the holding of a general meeting to propose and discuss a special resolution. A similar proportion can require the appointment by the court of an inspector of the affairs of the company. With these exceptions, minority shareholders of TCI companies have minimal rights other than to voice their discontent at a general meeting.

Disclosure of shareholdings

The register of members is available for inspection by all shareholders. Of course, the real beneficial ownership of the shares concerned may be hidden through use of nominees. In the absence of provisions limiting transfer or requiring disclosure in the articles (and those provisions are unusual), no disclosure is required.

Management structure and the role of directors

The most common management structure used by TCI companies is the single board.

Certain decisions require the approval of a special resolution of shareholders (75% approval of those voting). Certain alterations of the capital structure of a company require an ordinary resolution of shareholders (simple majority). Otherwise, responsibility and decision making is largely a matter for the board. The directors are governed in that respect by their obligations to the company (see below, under the heading Directors' duties).

The only statutory requirement is that every company must have at least one director and one secretary. The director and the secretary can be the same person. A director or secretary of a TCI company can itself be a company.

Election

Typically the board is nominated and elected by the shareholders and their term of office will be until their successors are elected or appointed. The articles will usually reserve to the directors a right to fill a vacancy in their number between annual general meetings.

Directors must be aged at least 18 and not to be subject to any mental incapacity. There are no education or nationality requirements.

The articles or the terms of the appointment may place a time limit on the period of appointment (for example, until the next general meeting).

Directors' duties

The duties of directors of TCI companies fall into two main categories: duties of good faith and honesty (or fiduciary duties) and duties of skill and care. Duties of good faith and honesty are owed to the company itself and not to the shareholders of the company. The fiduciary duties owed to the company include:

• a duty to act bona fide in the interests of the company;
• a duty to act for proper purposes;
• trusteeship of the company's assets, rendering a director answerable for any misapplication of those assets in certain circumstances; and
• a duty to avoid a conflict of interest.

In relation to their duties of skill and care, a director:

• is not expected to be an expert unless appointed as such;
• must exercise reasonable care and diligence;
• may reasonably rely on co-directors and officers of the company; and
• must use fair and reasonable diligence in the management of the company's affairs.

Most of the duties referred to are owed to the company so the company will usually be the party entitled to redress in the event of their breach.

As for liability to third parties, any director who is party to a fraud or to the commission of any other tort (civil wrong) is personally liable to the injured party. For example, if by order of the directors, a copyright is infringed, the directors who are parties to the infringement are personally liable, as is the company.

The articles will frequently contain a clause indemnifying directors and officers against liabilities incurred in the course of their office except where the liability was incurred as a result of their own fraud, wilful neglect or default.

Criminal sanctions for breach of duties

The TCI Companies Ordinance imposes criminal sanctions on directors for a variety of offences, including:

• breaches of the prospectus rules;
• failure to produce documents to duly appointed inspectors;
• false statements in relation to certain statutorily required declarations regarding the business of a TCI IBC;
• disclosure of confidential information;
• concealment of the names of creditors (in connection with an application for a reduction of capital); and
• sundry minor offences punishable by fine, relating to filing documentation and similar matters.

In the absence of a criminal offence, the directors' duties referred to above are largely enforced by civil action.

Removal of directors from office

Directors are appointed and removed by shareholders. On the appointment of a liquidator in a voluntary liquidation, all powers of the directors cease, except as otherwise sanctioned by the shareholders at a general meeting or by the liquidator.

Operations of the board of directors

The board of directors will determine the agenda and it will review such material as it deems appropriate.

The frequency of board meetings will vary from company to company; there is no statutory requirement in that respect. The company is obliged to maintain minutes of all resolutions and proceedings of directors meetings at its registered office, but is not required to make those records available to shareholders. The recourse for an aggrieved shareholder would be to apply for the appointment of an inspector, who would be entitled to require production of those records.

The usual procedure at meetings is to appoint a chairman from among the directors present at the meeting. Unless specified in the articles, the chairman will not have a casting vote.

TCI companies are frequently closely held, so committees, though usually permitted by the articles, are not commonplace.

Executive officers and secretary

The legally required minimum is one director and secretary, and a sole director may also be secretary. The articles would usually allow for the appointment of a managing director, treasurer and such other positions as are deemed appropriate by the board.

The position of company secretary is a statutory requirement. The responsibilities of the secretary are not fixed by law, though they may be specified in the articles. Usually they are administrative in nature and include:

• minuting the proceedings at meetings of shareholders and directors as well as issuing corporate notices to shareholders;
• corresponding with shareholders in regard to share transfers and the like; and
• maintaining the corporate record books and registers.

Remuneration

The remuneration of directors and officers is usually determined by the directors themselves. Given that TCI companies are usually closely held, shareholders are likely to be fully familiar with levels of remuneration.

Conflicts of interest

Conflicts of interest between the company and significant shareholders or directors are not statutorily addressed. One of the primary duties of a director is to avoid conflicts and they might be civilly liable to the company if they do not do so.

Directors and officers are bound by their duties to the company and they will be liable to the company for breach of those duties. In relation to significant shareholders, minority shareholders have limited rights but may seek appointment of an inspector with a view to throwing light on suspect transactions. In smaller, closely held companies, cosy transactions between a company and its shareholders, directors and officers will be liable to scrutiny by a liquidator and might render the parties concerned liable to action by the liquidator on behalf of the company. There are no statutory provisions of the type usual in larger jurisdictions, such as restrictions on loans to directors.

Unless imposed by contract or by the articles, and subject to common law duties to the company in the case of directors and officers, there are no restrictions on dealings in a company's shares by its shareholders, directors or officers.

Accounts and audit

All TCI companies are statutorily required to keep proper books of account. There is no legal requirement for those accounts to be filed at the Companies Registry or otherwise with any government body. There is no statutory requirement for an audit of the company's accounts.

Enforcement

Because TCI is largely a corporate domicile for closely held companies, there has been no domestic pressure for the enhancement or increased enforcement of corporate governance laws and regulations. International bodies have been pressuring the TCI government to introduce enhanced corporate transparency and those concerns are being addressed in the context of the international level playing field in financial services. In recent years the emphasis has been more on regulation of financial services providers than on corporate governance itself.

The emphasis is on enforcement by shareholders or other interested parties using their civil remedies in the courts.

Author biographies

Owen Foley Misick & Stanbrook Owen Foley is a graduate of University College, Dublin and has been admitted to practise in Ireland (1982), Australia (Victoria) and The Turks and Caicos Islands (1988). He practises extensively in the areas of corporate and commercial law, and international trusts. He has been a frequent speaker at international conferences on TCI trust matters and corporate governance. He is a member of the Society of Trust & Estate Practitioners. John Jones Misick & Stanbrook John is a graduate of the University of London and has been admitted to practise in England and Wales (1973) and The Turks and Caicos Islands (2005). He practises extensively in the areas of corporate and commercial law, regulatory law (including anti-money-laundering) and international trusts. He is also responsible for Caribbean Management Services Limited, the corporate services provider affiliated to Misick & Stanbrook.