By Miguel Vasquez
The laws of Trinidad and Tobago (‘T&T’) provide for a number of corporate structures that can be utilised for the purpose of carrying on business in T&T. The most appropriate choice of structure for any particular venture may depend on a number of commercial factors, as well as the suitability based on the nature, size and complexity of the intended operation, and the inherent limitations that attach to each corporate structure.
In this article, we will briefly discuss some of these corporate structures, as well as some of the basic registration requirements that businesses should be cognisant of when operating in T&T. As indicated above, there are a number of corporate structures in T&T which include the following:
- An incorporated for-profit company;
- A registered branch of a foreign company;
- A partnership; and
- A joint venture.
The incorporation of a for-profit company is a common type of business structure as it provides persons with the option of limiting the liability of its shareholders, it is a separate legally recognised entity or person in law, it can enter into contracts, it can sue (and be sued) in its own name, it operates perpetually (i.e., its existence is not affected by the death of an owner), and the principles underpinning a company are generally consistent across jurisdictions that have a similar legal system to that of T&T.
The Companies Act provides for the creation and incorporation of four (4) types of for-profit corporate entities which include: (a) An unlimited liability company; (b) A company limited by shares; (c) A company limited by guarantee; and (d) A company limited by both shares and guarantee.
With respect to an unlimited liability company, its key characteristic is that there is no limit as to the liability of its shareholders in the event of a winding up. Further, the shareholders are personally liable for all debts and liabilities that are due and owing by the company.
On the other hand, liability can be limited in the case of the other types of for-profit companies. In a limited liability company (more specifically, limited by shares), there is practically no liability of any shareholder for debts or expenses of the company in the event of winding up. Where a company is limited by guarantee, the liability of its members only extends to the amount which they have specifically guaranteed to contribute to expenses and liabilities in the event of a winding up. In the case of a company that is limited by both shares and guarantee, this entity is a hybrid between companies that are limited by shares, and those limited by guarantee.
While there are benefits to using a company are the chosen corporate structure, there are significant compliance requirements which may be even more onerous based on the type of business that the company is engaged in. At minimum, companies are subject to filing and reporting requirements at the T&T Companies Registry, which includes annual filings and declarations from its beneficial owners, record keeping requirements, and ensuring that those responsible for the operations of the company do so in a proper manner. It is important to understand that the property and assets of the company do not belong to the shareholders, even in the case of a company that is wholly owned by one person. Fines, penalties and sanctions may also be imposed for non-compliance with certain legislative requirements, while the directors of a company may also be liable in certain instances for the acts of the company.
Rather than incorporating a company, a foreign company seeking to commence operations in T&T can register a branch at the T&T Companies Registry, as an external company. In any event, if the foreign company establishes a place of business in T&T, it is required to so register within period of time of establishing that place of business. While the incorporation of a company creates a separate legal entity recognisable in law, a branch of a foreign company is treated as an extension of that company; as such, any liability of the branch attaches to the foreign company.
With respect to filing and reporting requirements, similar to a for-profit company, a branch is also subject to these requirements at the T&T Companies Registry, and will be subject to fines, penalties and sanctions for non-compliance with legislative requirements.
A company and a branch are generally subject to similar corporate income tax regimes, but certain provisions of the tax legislation can deem the actions of a branch as being that of the foreign company, which can result in additional tax implications and exposures. Furthermore, there is a potential withholding tax exposure in relation to profits of a branch that are not reinvested in T&T (other than in the replacement of fixed assets), as the said profits are deemed to have been remitted abroad and therefore subject to withholding tax.
Where two or more parties are seeking to carry on business with a common view or objective, a partnership or a joint venture arrangement may be considered as a potential vehicle for facilitating this common intent.
In the case of a partnership, a partnership agreement may be entered into to specifically outline the interests, rights and responsibilities of each partner. In the absence of a partnership agreement however, the Partnership Act will govern a number of aspects of the business of the partnership, and the relationship between the partners. A partnership is not recognised as a separate legal entity in law and as such, each partner is jointly and severely liable for all debts and obligations of the partners. Furthermore, each partner has a fiduciary duty to act in good faith with respect to other partners and to the partnership. As such, proper due diligence should be conducted on each partner before entering into a partnership arrangement.
Parties may also consider entering into a joint venture through the formation of a joint venture company, or, alternatively, by entering into a joint venture agreement. The decision as to which form of joint venture arrangement to utilise should be based on a number of factors including the manner and extent to which rights and obligations are to be delineated, the intended financing arrangement, management and decision making structure, potential tax implications, and the risk or exposure of each joint venture party. The term (intended length of time) of the joint venture arrangement may also be a factor to consider, as a contractual arrangement is usually characteristic of a short-term operation, whereas a long-term operation usually takes the form of a joint venture company.
The terms of a contractual joint venture arrangement will determine the interest, rights and obligations of the parties to the joint venture, while in a joint venture company, the articles of incorporation and by-laws may outline these aspects to some degree. Where certain terms of a joint venture company arrangement are sensitive and require a high degree of confidentiality, these terms can be set out in a shareholder agreement to preserve privacy.
Similar to a partnership, parties to a joint venture should ensure that proper due diligence is conducted on each party. Moreover, each party should have clear and distinct objectives for the enterprise, defined rights, interests and duties, consider dispute resolution processes, and exit routes to determine the joint venture arrangement.
Regardless of the type of corporate vehicle chosen to engage in business in T&T, there are minimum regulatory requirements that each entity must be mindful of. For example, if the corporate structure chosen is the incorporation of a company or the registration of a branch, the entity will be required to:
- Be registered with the Board of Inland Revenue and to obtain a BIR File Number. When registered, the entity will be issued with the relevant tax accounts in order to facilitate the payment of the relevant taxes that it may be subject to;
- Consider whether the value of the commercial supplies exceeds the VAT registration threshold or is likely to exceed the VAT registration threshold. In such a case, to apply for VAT registration; and
- Register with the National Insurance Board after employing its first employee, and to make the relevant national insurance contributions and deductions on behalf of employees.