Island hopping: what’s the best choice?


So, you are incorporating a new company; where in the world do you go? If you are investing into China or intending to list in Hong Kong, then odds are you will end up with a British Virgin Islands (BVI) or Cayman company. Even with Hong Kong’s recent modernisation of its company law, these core jurisdictions offer Asian investors a level of corporate flexibility – the boutique experience – that simply isn’t available elsewhere.

Jonathan Culshaw
Jonathan Culshaw

BVI and Cayman offer significantly lower taxes, less onerous regulation and greater privacy than most Asian jurisdictions; the identity of shareholders and directors is not public. They impose no auditing or reporting requirements or foreign exchange restrictions. Companies may give financial assistance without a costly and time-consuming whitewash procedure, merge with other local or foreign companies (far simpler than the scheme of arrangement route), migrate between jurisdictions, transfer shares free of stamp duty, hold shares in treasury, buy back their shares without shareholder or court involvement, declare dividends from almost any source of funds (rather than just profits) and convene board and shareholder meetings anywhere in the world. These are also creditor-friendly jurisdictions where security may be enforced without court involvement – great for debt financing – and there is no Chapter 11 or administration equivalent currently in force imposing moratoriums on creditors’ rights.

BVI and Cayman also share a common law foundation, right of final appeal to the Privy Council and a strong rule of law. They are prosperous and stable microstates with small, affluent populations isolated to some extent from global economic and political turmoil by not being part of any major political or economic grouping – and in particular they are economically and politically remote from Asia. Their dependence on offshore business makes material adverse change in tax and law almost unthinkable. They are stable destinations and never necessitate any last minute change of plan.

So which one? If you are looking for a cheaper getaway, then BVI has much lower government incorporation costs, annual fees and service providers’ fees for companies than Cayman. This has proved to be a decisive factor for many clients in the competitive Asian market particularly. What else?

  • The only matters of public record in Cayman are a company’s name, status and registered office address. In BVI, the incorporation documents and memorandum and articles of association, as well as optional others, are publicly available, and as rights attaching to shares are legally required to be documented in the memorandum and articles of association, this tends to make Cayman the jurisdiction of choice whenever there are sensitive shareholder arrangements requiring confidentiality. Alternatively, many investors prefer the convenience of a single document setting out all shareholder rights.
  • For security holders, BVI boasts the significant advantage of a public regime for the registration of security that confers statutory priority; a regime widely praised for its simplicity, speed and cost efficiency, and much beloved by lenders. In Cayman, the common law still applies to priority of security interests, making it more difficult to establish priorities.
  • The requirement to state and maintain an authorised share capital has long been abolished in BVI, rendering obsolete the concepts of par value, share premium accounts, discounted shares and alteration of share capital. Cayman still observes the principle. (Hong Kong has now followed the BVI approach, but still requires shareholder approval to issue shares, which somewhat undermines the simplification of capital maintenance arrangements).
  • Both jurisdictions require the satisfaction of a solvency test prior to making a distribution. In BVI this requires: i) the value of the company’s assets to exceed its liabilities; and ii) the company to be able to pay its debts as they fall due – both balance sheet and cash-flow solvency. In Cayman, the only requirement is that the company must be able to repay its debts as they fall due in the ordinary course of business. This is an easier threshold to meet (and avoids trying to decipher the applicability of the Eurosail case).
  • As Hong Kong and other jurisdictions move away from objects clauses, BVI offers a restricted purpose company (RPC), which has a limited objects clause, and whose actions can be ultra vires. If properly incorporated, any attempt by the directors to deal improperly with underlying assets will be void and unenforceable, giving RPCs obvious appeal for structured finance deals. There is no equivalent vehicle in Cayman, although both jurisdictions offer a “segregated portfolio company” that Asian equity investors often choose, in the absence of an onshore equivalent, for establishing and managing several investment portfolios using a single entity.
  • Both jurisdictions allow a foreign character or foreign name to be adopted, which has obvious appeal in Asia. In BVI, failure to use the foreign name on documentation attracts statutory fines of US$1,000; in Cayman the use of the foreign name is optional. In BVI, maintaining a seal is mandatory, whereas in Cayman it is optional, although in neither jurisdiction is it required to execute a deed validly.
  • Subject to certain limitations, amendments to a company’s memorandum and articles of association may be made by BVI directors as well as members, whereas in Cayman only the members have the power to do so. Both jurisdictions require a registry filing, although in Cayman amendments are effective immediately, rather than upon the later registration date in BVI.
  • The ability to list on the Hong Kong stock exchange used to be a well-touted advantage of Cayman companies, but the exchange has accepted BVI listings since 2009.
Ellie Crespi
Ellie Crespi

Do beware of cheap imitations. Both BVI and Cayman have a solid base of local service providers ensuring smooth business operations and are supported in Asia by full-service law firms and corporate service providers providing timely support. Many newer jurisdictions are not scoring high visitor reviews in this area. BVI and Cayman have also responded proactively to international scrutiny and calls for co-operation to combat crime and terrorism. Both have implemented comprehensive anti-money laundering regimes. Choose an offshore jurisdiction indiscriminately and your business partners will simply not want to go there with you.

Still can’t decide? If physical travel appeals (it is never required), we recommend BVI for sailors and hikers, and Cayman for divers and foodies.

Jonathan Culshaw is the managing partner of the Hong Kong office at Harney Westwood & Riegels. He can be contacted on +852 3195 7238 or by email at

Ellie Crespi is a senior associate at Harney Westwood & Riegels in Hong Kong. She can be contacted on +852 3195 7214 or by email at