1. Offshore >
2. Starting a Business >
3. Gibraltar

Gibraltar Company Formation

Overview

Different types of business entities are defined in the legal systems of various countries. In Gibraltar, these range from Sole Traders and Partnerships to Companies and Trusts, as well as various other specialised types of structures.  Read more about Gibraltar company formation services.A description of the most common types follows.

Sole Traders

Becoming a sole trader is the simplest way to get started in business. It is the most basic form of business structure and it is also relatively easy and inexpensive to start and maintain.

Many sole traders choose to trade using their own name by registering as a Self-employed entity with the Income Tax Office and Employment Service. It is also possible to trade under a Business Name by registering one via Companies House prior to registering as Self-employed. Once registered, sole traders can start trading straight away (subject to acquiring any specific licenses as and when required e.g. Retailers that will sell products in commercial quantities will need to secure a Trade Licence prior to operating). Sole traders are taxed as individuals and pay income tax at personal tax rates. Any business income, deductions, gains or losses must be declared on the annual personal tax return form.

Sole traders retain complete control over the affairs of their business, including all assets and earnings. However, sole traders have unlimited liability and are consequently personally responsible for any losses their businesses may incur. It may also be harder to secure finance if registered as a sole trader. Nonetheless, there are a number of funding sources available, ranging from personal savings and business loans to EU Funding and Tax Relief (if eligible).

Partnerships

In this type of structure, two or more individuals or entities agree to share the risks, costs and responsibilities of being in business. Each partner is self-employed and takes a set portion of any profits the business makes. Partners typically contribute finance, time and skills, share in the decision-making and are personally responsible for any debts.

Unlike in a limited company set-up, a partnership has no legal existence distinct from the partners themselves. If a partner leaves, dies or goes bankrupt, the partnership must be dissolved. The business, nonetheless, can still continue to exist.

A partnership thus offers a relatively simple and flexible option for two or more people to own and run a business together. However, partners do not enjoy any protection if the business fails.

Limited Liability Partnership

A limited liability partnership (LLP) is comparable to an ordinary partnership in that a number of individuals or Limited Companies share in the risks, costs, responsibilities and profits of the business.

In an LLP, however, one partner is not responsible for another partner's misconduct or negligence. This is an important difference from that of a typical partnership. All partners in an LLP hence have a form of limited liability for each individual's protection within the partnership. The level of liability is limited to the amount of money invested and any personal guarantees that have been established to raise finance.

This is similar to being the shareholders of a corporation. Unlike corporate shareholders though, the partners have the right to manage the business directly, whereas corporate shareholders have to elect a board of directors to manage the business for them.

The LLP must be registered with Companies House as well as with the Employment Service and Income Tax Office. Annual accounts for both the business and its partners must also be submitted. An LLP is a slightly more complex structure and appointing a suitable local professional to set it up is recommended.

Companies

In accordance with the Companies Act 1930, companies are required to be incorporated in Gibraltar as:

• A company limited by shares
• A company limited by guarantee with or without a share capital
• An unlimited company with or without share capital

The services of a professional expert should again be sought when incorporating a limited company, although this is not a strict requirement. Generally, setting up this structure may cost well over £400, though this is habitually considered to be money well spent since the professional appointed will produce and implement all the intricate incorporation documentation as well as offer to undertake other services. Shopping around for suitable specialist is recommended.

A limited company may own assets, enter into contracts, borrow and lend money, as well as sue and be sued in its own name. The legal personality of the limited company is separated from its individual shareholders (owners). However, it is common practice for banks and landlords to seek personal guarantees from the directors, by making them personally liable for obligations should the business fail.

The liabilities of a company are distinct from those of its shareholders. The company is liable for its debts to the full extent of its assets, though this liability does not extend to the personal assets of its shareholders. A company also has perpetual existence, thus the ownership can pass at any time through the transfer of the shares; this being an ideal vehicle for expansion.

There are some points that need to be noted on the subject of company incorporation:

• All companies must comply with the provisions of the Companies Act.
•There are normally fees for the management of a company.
•Company details can be disclosed even if limited by shares.
• Accounts and other returns are necessary and are by and large an annual requirement.

There are numerous regulations governing the administration of a company, with the duties, responsibilities and liabilities of directors being set out in the Companies Act 1930.

To view the Companies Act visit www.gibraltarlaws.gov.gi

The first step when forming a Gibraltar Company is to ensure that the proposed name is acceptable to the Company Registrar. Once the name is approved, the following documents need to be submitted in accordance with the provisions of the Companies Act:

• Memorandum of Association
• Articles of Association
• Declaration of Compliance
• Notice of Situation of Registered Office
• Statement of Nominal Share Capital

A registration fee of £50 is currently payable at the time of presentation of the documents. The Memorandum and Articles of Association must be embossed with the appropriate Stamp Duty.

The time taken to incorporate a Company in Gibraltar is normally three working days, though a company may be incorporated within 24 hours if necessary for a fee of £100. Once incorporated, a Certificate of Incorporation is issued. Under Gibraltar legislation, only barristers or acting solicitors of the Supreme Court may incorporate Companies for gain.

Protected Cell Companies

The Protected Cell Companies Act provides for a protected cell company (PCC) to create one or more cells for the purpose of segregating and protecting cellular assets. As a result, the rights of creditors would be limited to the assets of the cell of which they are creditors.

The PCC may, in respect of any of its cells, create and issue shares (the cell shares) the proceeds of which (the cell share capital) are comprised of the cellular assets attributable to the cell in respect of which the cell shares were issued. A PCC may also pay a dividend on individual cells (a cellular dividend), subject to available profits, and by reference to the assets and liabilities of the cell.

A company may be incorporated as a PCC or converted, if permitted by its Articles, into a PCC. The name of the company would include reference to its PCC status and each cell must have its own distinct name or designation.

Insurance companies and collective investment schemes require the consent and approval of the Financial Services Commission before operating as a PCC. An annual licence fee of £3000, plus £1000 per cell, is currently payable to the Financial Services Commission.

Trusts

In common law legal systems, a trust is a relationship in which a person or entity (the trustee) holds legal title to certain property (the trust property or trust corpus), though it is bound by a fiduciary duty to exercise that legal control for the benefit of one or more individuals or organisations (the beneficiary), who hold beneficial or equitable title. The trust is governed by the terms of the (usually) written trust agreement and local law. The entity (one or more individuals, a partnership, or a corporation) that creates the trust is called the settlor (in other jurisdictions: the trustor, grantor, donor or creator). The common benefits that trust arrangements offer include providing personal and financial safeguards for family and other beneficiaries, postponing or avoiding unnecessary taxes, and establishing a means of controlling or administering property as well as meeting other social or commercial goals.

In certain circumstances, the income received by a trust or beneficiary under a trust may be exempted from paying income tax in Gibraltar. The Trustee Act is the main legislation governing trusts in Gibraltar. Such trusts are particularly attractive to a non-resident in Gibraltar because there is no estate duty, inheritance tax, capital gains tax, wealth tax or gift tax applicable in Gibraltar. No stamp duty is payable on the transfer of any assets (other than on real estate situated in Gibraltar) held by such a trust.

The trust commonly known as the Asset Protection Trust seeks to protect the assets of a settlor from such situations as political strife, forced repatriation, confiscatory taxes, exchange controls and, most recently, risks associated with litigation arising out of malpractice or negligence suits.

However, such trusts may be invaded by a creditor of the settlor should it be revealed that transfers into the trust lacked legal propriety.

To view the Trustee Act visit www.gibraltarlaws.gov.gi

Non-profit Making Organisations

A non-profit making organisation (also known as a ‘not for profit’ organisation) is the name given to a legal entity that does not accrue money purely for profit or personal gain. Examples of such organisations include:

• Associations
• Clubs
• Societies
• Charities

A non-profit making organisation can be setup as a trust, company or in even by an incorporated association, as is the case with a registered charity. In Gibraltar, a charity is registered with the Charity Commissioner at the Supreme Court. One of the advantages of registering as a charitable organisation comprises that is exempt from paying certain taxes once certified. It is also possible to set up a charity to create awareness for a particular cause as well as to use it a vehicle to fund an activity. Trusts and bodies partly established for charitable purposes are likewise from time to time considered as, or treated as, charities.

Government of Gibraltar

Click here to Ask an Expert about Gibraltar in Offshore