Planning to succeed

Shares in a BVI company are situated in the BVI and shares in a Cayman company are (generally) situated in Cayman. In each case, they are classified as movable property. ¹Where movable property is situated within the jurisdiction, BVI and Cayman law both regard the law of the place in which the shareholder was domiciled at the time of death as that governing the succession to the property. For example, if an individual domiciled in Mexico dies holding shares in a Cayman fund, Cayman looks to Mexican law to work out who inherits the shares. Questions such as:

• can the individual dispose of the shares by Will?

• will mandatory forced heirship apply to the shares?

• what happens on intestacy?

• who administers the estate?

all fall to be answered with reference to Mexican, not Cayman law.

Accordingly, ascertaining the shareholder's last domicile is fundamental to determining who succeeds to the shares. ²Domicile is a common law concept used to establish which legal system applies to a person where that person has connections with more than one jurisdiction. It is distinct from the concept of nationality or residence and has no direct equivalent in many civil law systems. Broadly, a person's domicile is the country that he considers his permanent home; there are, however, a variety of factors to take into account when determining domicile and occasionally it can be far from obvious. Appropriate advice should be taken in each case.

¹As opposed to immovable property: land, buildings, and so forth. 

²For the purposes of BVI and Cayman law, an individual’s domicile is determined according to the same principles that apply under the common law in England and Wales.  

Once domicile is established and the rightful heirs identified, the question of how to transfer the shares to those heirs arises: here, the basic requirements for the effective transfer of shares under BVI or Cayman law will apply regardless of the deceased shareholder's last domicile. In order to update the register of members, the directors of the company will wish to see the shareholder's death certificate, a share transfer form signed by his personal representative(s) (PR), and a grant of representation issued to the PR by the local court in BVI or Cayman. The local grant is the only reliable evidence of the PR's authority to transfer the shares – a foreign grant is not sufficient. Without sight of the local grant, the directors have no proof of the PR's status and no protection if it transpires that they have registered the shares in the wrong names.

Applying for a grant of representation in BVI or Cayman involves an application to the local court. The form of the application and type of grant will turn on the facts. ³The application is on paper with rarely any need for personal appearances and will be supported by an affidavit from a lawyer qualified in the jurisdiction of the deceased shareholder's last domicile, confirming the status of the PR and the heirs under that law. Typically, the PR will engage a local law firm to assist, the whole process taking between four to six months.

³Where the deceased left a valid Will, the application is for a grant of probate; where the deceased died intestate, the application is for a grant of letters of administration; where an equivalent grant has been issued to the PR in a foreign court, a "resealing" application is often possible.

Probate avoidance planning is possible. A simple joint tenancy arrangement between two individuals will result in the survivor taking the shares automatically on the first death, without any need for a grant. A more sophisticated solution is for the shareholder to settle the shares into a family trust during his lifetime so that they do not form part of his estate on death.

Other solutions are less effective. A power of attorney purporting to authorise the transfer of shares after the shareholder's death is ineffective; the attorney's authority terminates immediately upon the shareholder's death. Similarly, transferring shares to a nominee will not remove the need to obtain a grant of probate on the beneficial owner's death: the beneficial interest forms part of their estate and probate will be needed in order to deal with it properly. For obvious reasons, the backdating of share transfers to before the shareholder's death is to be avoided at all costs.

This article summarises a technical area of law. It does not consider the tax implications of any succession planning strategy. Shareholders in offshore companies should take advice both in their home jurisdiction and offshore in order to plan appropriately.