Expert View: The Bahamas Executive Entity

Tom Burroughes

29 May 2012

Editor’s note: This publication has recently carried several articles about the start of what is called the Bahamas Executive Entity, a new structure to carry out executive duties regarding trusts. Caroline Garnham, a senior lawyer who previously worked at LG, and the founder of Family Bhive, explains how these entities work.

What is the Bahamas Executive Entity? How does it work?

The Bahamas Executive Entity Act is a perpetual entity, designed to carry out executive duties, but is prohibited from holding any value other than what is needed to pay for its administration. It has no shareholders, no enforcer, or protector and no other person or body to which the officers of the entity need to either account or report. Furthermore the officers have limited liability in the same way as they would if they were directors of a Bahamian company.

Why was the BEE brought into existence? What sort of firms/persons were calling for it and where were they from?

The BEE was brought into existence to solve the concern many of my clients had with the fact that the directors of their private trustee companies could be removed and replaced by the professional trustee of the purpose trust which owned it. These clients were also concerned that if anyone was appointed as a protector, that person could potentially have unlimited liability, if for some reason the indemnity was faulty or in some way lacking. Again, if to gain limited liability the protector incorporated a special purpose vehicle the problem then arises again as to who is to hold the shares and what to do with the shareholders' power to appoint and remove the directors of the protector company.

What do you see as the main plus points of the BEE? Are there any downsides or risks involved in using these structures that potential clients should know about?

The main plus points of the BEE are that it is designed for the purpose of creating a SPV specifically for carrying out executive decisions together with limited liability for the decision maker. The reason why it has not been included as an entity which can be used as a private trustee at this stage, is to try it out first as the holder of the shares of a PTC, a protector, or an advisory board or whatever and if any wrinkles emerge to iron these out before permitting the SPV to be the trustee. It has however been reviewed and tested by many lawyers both in the UK and in the Bahamas, so we hope that there are no major wrinkles or risks.

What sort of clients do you expect to use BEEs and why?

Any founder or settlor of a substantial fortune using offshore trusts regardless of jurisdiction who wants to retain control over the assets and distribution of funds in the hands of either family members or his professional advisors should consider using the BEE.

How do you see the wealth structuring market, as evidenced by BEEs, developing at the current time? Is innovation improving or not?

Innovation should be used to resolve concerns as they arise and not for the sake of innovation to attract business. Over the last ten years the offshore trust world has been very creative and evolved in a way that serves many of our clients’ concerns, I would not expect it to continue to evolve at the same pace going forward, since many of the issues have now been addressed, .

Are there similarities between the BEE structure and others that you and your colleagues worked on in the past?

The BEE is an entity entirely different from any other, the closest to it is the offshore foundation, but this has the disadvantage of extensive compliance.

How long did it take for your team at LG to fashion the BEE structures?

It took the good part of a year, to devise and draft and then we had to wait for about two years as the Bahamas moved out of the grey list and found time to take it through parliament.

Any other points you would like to make on this issue?

The BEE is a very useful tool in the kit box of the wealth structuring advisors, and I am sure it will not be long before other jurisdictions will bring out their own version, but for the time being the Bahamas have proved to be both innovative and responsive to the needs of those they wish to attract to their islands for wealth structuring.