A local company or LLC that carries on business in Bermuda must be controlled by Bermudians, unless it holds a license from the Minister.
What the Third Schedule requires
Part I of the Third Schedule to the Companies Act 1981 contains what is commonly called the sixty forty rule. It requires that:
- the company is controlled by Bermudians
- at least sixty per cent of the total voting rights are exercisable by Bermudians
- the percentage of Bermudian directors is not less than sixty per cent
- the percentage of shares beneficially owned by Bermudians is not less than sixty per cent
How the percentages are measured
Each of the three percentages is measured separately, and each must be satisfied. Meeting the voting rights test does not cure a shortfall in the proportion of Bermudian directors, or in beneficial ownership.
Beneficially owned, not registered
The share test looks to beneficial ownership rather than the name on the register of members. A nominee holding for a non-Bermudian does not make the shares Bermudian.
If your Bermudian shareholding falls below sixty per cent
The company may no longer carry on business in Bermuda in reliance on the Third Schedule. Three routes remain open: qualify under one of the other limbs of section 114(1), including being a wholly owned subsidiary of a company that complies, or being listed in Part II of the Third Schedule; obtain a license from the Minister; or cease carrying on business in Bermuda.
The annual return is where this shows up
A local company files an annual return of shareholdings each year. That return is how a change in the Bermudian percentage becomes visible.
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Filing your annual declaration →
The license route
- Advertise. Not less than seven days before applying, publish your intention in an appointed newspaper.
- Apply to the Minister under section 114A.
- The Minister decides, and may grant or refuse in his discretion. If of the opinion that a grant would not be in the public interest, he may refuse without giving reasons.
- The license is granted under section 114B, and the Minister lodges a copy with us.
In deciding, the Minister must have regard to the economic situation in Bermuda and the due protection of persons already engaged in business here; the nature and previous conduct of the company and those interested in it; any resulting advantage or disadvantage; and the desirability of retaining in the control of Bermudians the economic resources of Bermuda.
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Applying for a local company license →
How this applies to LLCs
A materially identical regime applies to local LLCs. Section 11 of the Limited Liability Company Act 2016 sets out the sixty per cent requirements by reference to Bermudian managers and to the value of LLC interests beneficially owned by Bermudians.
Two differences are worth knowing. Under section 11(7) the Minister may by order exempt a local LLC from those requirements. And the license route runs through section 12, the application, and section 13, the granting and revocation of the license.
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