The process of company incorporation

Can the Minister for Commerce et cetera please direct me to these attorneys who receive $3,000-$5,000 for the basic incorporation of a private company?

The fees charged by the Government for the incorporation of a private company are $750.00 or $780.00 if a name reservation also has to be done. Mind you, there is a distinction between a private company and a public company.

A public company is one in which the public can purchase shares. It also trades on the stock exchange (e.g. Barbados Light and Power Co.) These are usually large scale entities.

A private company can range from a man with one weed whacker to the Williams Group.

The Legal Profession (Remuneration for Non-Contentious Business) Rules, 1997 provide the minimum fees to be charged by an Attorney-at-Law in the following cases:

• Incorporation and registration of a private company including by laws, first organizational meeting and preparation of ancillary documents  —  $1,500.00

• Incorporation and registration of a public company including bylaws and first organizational meeting — $2,500.00

• Conversion of a private company into a public company — $5,000.00

• Incorporation of an offshore company — $3000.00

The law requires that these fees must be charged by an attorney who is doing the work described. Rule 6 states that “An Attorney-at-Law …shall not directly or indirectly do any non-contentious business at a fee less than the prescribed fee…”

The vast majority of attorneys slavishly stick to charging the minimum fee. That fee is only applicable where the attorney prepares the application and visits the Corporate Registry the 1001 times necessary to get back the certificate from the government.

Mind you, the Minister had said that it can be done in two business days. Somewhere in the world but not here. It is also misleading to say that you need an attorney to register a company here. There is no requirement that an Attorney-at-Law must be the one making the application.

Section 4 of the Companies Act Cap. 308 only states that “if articles of incorporation submitted to the Registrar are accompanied with a statutory declaration by an Attorney-at-Law that to the best of his knowledge and belief no signatory to the articles is [ less than 18 years, of unsound mind or bankrupt], the declaration is for the purposes of this Act, conclusive of the facts therein declared.”

Persons employ an attorney for the pre-incorporation advice which the attorney can render. If you are starting up a freight business, you may know all there is to know about tonnage but what the attorney knows is how to craft your articles of incorporation and bylaws to avoid problems between you and your fellow investors and/or directors. It pays not to be pennywise and pound foolish.

Articles should be helpful so a short discourse now follows on the merits of incorporation. Section 3 of the Companies Act, Cap. 308 provides that “No association, partnership, society body or other group consisting of more than 20 persons may be formed for the purpose of carrying on any trade or business for gain unless it is incorporated under this Act or formed under some other enactment.”

Section 4 goes on to provide that “one or more persons may incorporate a company by sending articles of incorporation to the Registrar of Companies.” Such persons are required to have reached the age of 18 years, be of sound mind and not have the status of a bankrupt.

The whole point of incorporating a company, as opposed to using one of the other methods of conducting business, is the separate legal personality of a company. Section 17 (1) provides that “A company has the capacity, and subject to [the] Act, the rights, powers and privileges of an individual.”

In other words, the company is separate from the persons who created it and this affords protection to the assets of the individuals incorporating a company so that for example, if a judgment is obtained against the company, then the houses, cars and other real and personal property of the incorporators cannot be seized to satisfy the judgment.

The classic illustration of the separate legal personality of a corporation is highlighted in the seminal case of Saloman v A. Saloman & Co. Ltd.  [1897] A.C. 22. The Plaintiff incorporated a company with himself as the main shareholder and debenture holder with members of his family holding one nominal share each in order to comply with the provisions of the UK companies’ legislation then in force. The company encountered some financial difficulty and in attempts to rescue it, the Plaintiff mortgaged his debentures and loaned the money to the company. The company went into receivership and eventually fell into liquidation.

The Liquidator, in the sale of the company’s assets, had enough to pay the mortgagee of the debentures but not enough to settle all the other outstanding debts. The mortgagee then sued the company and the liquidator argued that the debentures were invalid on the ground of fraud.

The House of Lord, in its decision on the case, stated that a one-man company was not fraudulent or an abuse of the Companies Act since all the relevant formalities outlined in the Act had been complied with and “the Act was silent on the question of beneficial interests and control”.

The decision was based on the rationale that the legislation was enacted for the purpose of protecting shareholders by limiting their liability. There are situations in which the court will “pierce the corporate veil” or look behind the company persona to determine the shareholders but those situations are few and far between, are not to be found in run-of-the-mill business situations and therefore require individual treatment.

Incorporation shields your personal assets and regulates the relationship between you and the persons who are involved in the business with you. Be smart.

(Alicia Archer is an attorney-at-law in private sector)

4 Responses to The process of company incorporation

  1. Frank White March 10, 2017 at 4:12 pm

    Great article, food for thought for the black businessman…

    Reply
  2. Colin March 10, 2017 at 9:13 pm

    The current companies act was structured to allow anyone to go into the registry and incorporate a company. This could be done more easily if it was not for section 4 mentioned in the article above. The changes were made to bring Barbados into line with the Canadian business corporation act and similar precedents she. It was done. The typical time for a simple incorporation is three days after the name has been reserved.

    Reply
  3. RHB March 10, 2017 at 9:50 pm

    The only profession in Barbados that has a LAW governing the MINIMUM fee to be charged is lawyers. The rest of us have to compete with others in the market. Fair Trading Commission – where art thou?

    Reply
  4. Attorney-at-Law March 11, 2017 at 8:55 am

    This is a self serving article at best. A dogged plea to the public to “please retain my services”. If there was ever a thing as self advertising this is it !

    You can’t tell a resort what per night price to put on its rooms, fees vary across the board.

    Similarly, you can’t tell LEX or CGF what to charge for their services. They alone know their over-heads. Similarly, a two man office like yours would charge your fees accordingly.

    Meanwhile you should be concerned about your own practice and conduct of your clients’ affairs rather than to be policing your colleagues fees whilst advertising your cheaper fees, of course.

    Reply

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