2. LEGAL FRAMEWORK

2.1. The Company Name

The right to use a certain company name is granted by the Registrar of Companies. A proposed company name may not be approved on the following grounds:

• The name is the same or similar to existing names, creating confusion or false impression of association or may be perceived as misleading. Words such as Crown, Royal etc. are not allowed.
• Words such as International, European, National may be sensitive and may be granted upon certain conditions.
• Words such as Bank, Insurance, Investment, Fund require a special licensing procedure and special capital requirements prior to being granted.

Example 1: For an Isle of Man company to include the word International in its company name it had to prove the fact that it maintains offices in a number of countries. The Registrar granted the name with the condition that the company is incorporated with a minimum share capital of 100,000 Sterling Pounds.

Points to Note:

• Some offshore jurisdictions are flexible about company names, allowing duplicity of company names.
• PPB INC applies and maintains a list of ready approved names by the Registry authorities. These names, most of them generic in nature, are ready for incorporation upon selection by the client.
• If the client wishes to propose an individual company name we request that three or four names are given in order of preference to maximize chances of approval.
• If the client wishes to use the offshore company as an independent party from his local company then the name for the offshore company should not have any similarity to his local one.

2.2. The Company's Share Capital

The authorized share capital is the monetary amount of shares, which the company has the right to issue, or sell, to the sharehold¬ers. The authorized share capital can be raised subject to a share¬holders meeting and approval.

The issued capital is the amount the company actually issues and sells to the shareholders, and it can differ from the authorized amount. For example a company may be registered with $1000 authorized capital, and issue $600 of it. This means that it still has the right to issue $400 more.

Note: It is a common misconcep¬tion that the issued and fully paid capital of the company should be deposited in the company bank account and stay there for the duration of the company's life. This is not the case. The contribution of capital may be carried out by settling one of the offshore company's first liabilities, which are the formation fees to PPB INC. PPB INC invoices the offshore company for its services, and the client, by settling these fees, contributes capital to the company.

Therefore in this way the offshore company can be registered and be fully operational without any deposits to the company's bank accounts and without any further requirements regarding its capital.

The Company's Shares

Shares can be registered or to the bearer. The owners of the registered shares are documented in the company records and the public records of the Companies Registry. Bearer shares are not associated with the name of the shareholder; physical possession of those shares indicates ownership.

Note: Most of the banks are not willing to open bank accounts for companies with bearer shares as they can not trace the ownership at any point of time. As a measure against money laundering the Central Bank of Cyprus instructed the commercial banks in Cyprus not to open bank accounts for companies with bearer shares.

2.3. Memorandum of Association

The Memorandum is a document signed by the shareholders of the company, which sets out the activities in which the company will do business. In accordance with the ultra vires doctrine established by English courts, companies are only authorized to conduct such activities as are listed in the Memorandum. PPB INC includes a number of objects that give the flexibility to the client to carry out any normal commercial transaction.

There are some jurisdictions that allow the inclusion of a "general paragraph", which, in essence, says that the company has the right to engage in such activities, which, in the opinion of the directors, are beneficial to the company.

Example of a general paragraph and only object included in the Memorandum of Isle of Man companies:

"There are no restrictions on the exercise of rights, powers and privileges of the company".

2.4. Articles of Association

The Articles represent a contract between the shareholders and the company. They provide detailed guidelines as to the management of the company's affairs, and set out the rules for the interrelation between the shareholders, the company, and the company officers.

Example: Two owners of a new offshore company with a shareholding of 60 % and 40 % respectively were discussing the possibilities of equal decision powers, even though one of them was the majority shareholder. PPB INC proposed for the company to issue two groups of shares; Class A shares amounting to 60 % of the total shares which had the right to appoint one director to the board of directors, and Class  shares amounting to 40 % of the shares that had the right to appoint one director to the board of directors. This provision was inserted in the Articles of the company. For the articles of the company to change, a special resolution must be passed requiring at least 75 % of the shares voting to do so. Therefore none of the two shareholders could withdraw or alter that provision. In this manner the two owners of the company with different shareholding had the same powers. Usually law offices have standard Articles of Association, which can be changed prior to registration of a new company, or amended in the case of an existing one. It should be taken into consideration that the latter option above takes con¬siderably longer.

2.5. Shareholders

The shareholders are the legal owners of the company. The shareholders of a company can be physical persons or corporate bodies. The minimum number varies with jurisdictions.

Note: For jurisdictions that have a minimum of two shareholders and there is only one owner of the company this does not create an inconvenience in the case where the client utilizes the PPB INC nominee services for anonymity. In this case two PPB INC trustee companies (thus fulfilling the requirement of the two minimum shareholders) will hold the shares on behalf of the one and only owner of the company. Obviously the same two trustee companies can accommodate a larger amount of beneficiaries if necessary.

2.6. Directors

The directors are legally responsible for all of the affairs of the company before the shareholders, as well as the government. They are answerable for the actions of the company in a court of law. Their number also varies according to the jurisdiction. Some jurisdictions allow for corporate directors i.e. a company may act as directors of the other company.

Note 1: In the case where the client utilizes the PPB INC nominee services for anonymity PPB INC appoints a minimum of two nominee directors so that at any point of time a director is present and available if his/her services are required by the client. The nominee directors are professional and qualified members of PPB INC.

Note 2: For the jurisdictions where the directors should be located out of the country of incorporation for example England and the client utilizes the PPB INC nominee services for anonymity PPB INC appoints three nominee directors located in three different countries. The reason for this is that the company in this manner does not have the majority of the directors in any single country and thus is not taxable in any of the three countries the directors are located in.

Note 3: To use a Double Tax Treaty, the client should know that one of the requirements for tax residency determination is the location of the management and control of the company. In other words, the directors of the company should reside in the country which is to be considered the tax residency of the company.

2.7. Secretary

The company secretary may be a physical or a legal person, and is responsible for the good standing of the company in relation to the Registrar and other government bodies. The secretary keeps the statutory registers and prepares the notices, returns and other documents, which must be delivered to the Registrar of Companies as per the jurisdic¬tion's requirements.

Note: It is unfortunate that this term coincides with the descrip¬tion of an office secretary and thus may be confusing.

2.8. Distribution of duties

This is probably a good point to mention a very important aspect of English Law on companies, and that is distribution of duties. In other words, shareholders, directors and bank signatories have completely separate rights and duties in the company, and are completely independent of each other. All three may be the same persons, or they may be three different groups of persons. Mr. A can be shareholder, Mr. Â the director and Mrs. Ñ -the bank signatory.

2.9. Registered office

In accordance with the law, the registered office of the company must be located in the country of incorporation. The address of the registered office is considered the address where official and legal documents may be served on the company.

Registration documents, trust documents, Powers of attorney, apostilled documents and legalized documents