The Companies Ordinance (Chapter 16.08) (the “Ordinance”) is the primary legislation in the Turks and Caicos Islands (the “TCI”) in relation to companies. The types of company that may be incorporated or continued under the Ordinance are:

• a company limited by shares;
• a company limited by guarantee that is authorised to issue shares;
• a company limited by guarantee that is not authorised to issue shares;
• an unlimited company that is authorised to issue shares; and
• an unlimited company that is not authorised to issue shares.

A company limited by shares may be incorporated as a protected cell company (a company whose assets are segregated into cells) or, if it has already been incorporated, be registered as a protected cell company in accordance with Part XI of the Ordinance.

The Ordinance also provides for the establishment of a non-profit company (established solely or primarily for charitable, religious, cultural, educational, social or fraternal purposes or for the purpose of benefiting the public or a section of the public). A company limited by guarantee may be incorporated as a non-profit company.

Foreign investors generally use companies that are limited by shares for the purpose of holding real estate or for carrying on business in the TCI.

Classes of Shares

Section 51 of the Ordinance provides that, if authorised by its articles, a company can issue more than one class of shares. Without limiting this right, Section 52 of the Ordinance lists examples of how shares might be classed, including that they:

• may be redeemable;
• with respect to distributions of capital or income, may confer or not confer rights or preferential rights;
• may confer special, limited or conditional rights, including voting rights or not confer any voting rights;
• participate only in certain assets of the company; and/or
• if issued in, or converted to, one class or series, be convertible to another class or series, in the manner specified in the articles.

Subject to its articles, a company may also issue bonus shares, partly paid and nil-paid shares and fractional shares.

Bearer shares are specifically prohibited by Section 53 of the Ordinance.

Rights Attaching to Shares

In general terms, and subject to anything contrary in a company’s articles, a share in a company confers on its holder the right to one vote at a meeting of the members of the company or on any resolution of the members of the company; the right to an equal share in any dividend declared; and the right to an equal share in the distribution of the surplus assets of a company (per Section 50 of the Ordinance).

In the case of a company limited by shares, its articles must set out the classes of shares it is authorised to issue, as well as the rights, privileges, restrictions and conditions that attach to any such shares.

The relationship between shareholders and their respective rights and responsibilities is essentially a contractual one. Shareholders can adopt a form of articles to suit their needs and can supplement them as necessary by way of a shareholders’ agreement. 

Section 16 of the Ordinance provides that the shareholders of a company may amend its articles by resolution. The articles can also make specific provision for “entrenched provisions”, which cannot be amended or repealed unless certain conditions are met or unless a majority greater than 50% of the shareholders is required to amend the articles. 

Section 16(4) goes on to provide that, despite any provision to the contrary in a company’s articles, the directors of a company do not have the power to amend the articles in such a way as to:

• restrict the rights or powers of the shareholders to amend the articles;
• change the percentage of shareholders required to pass a resolution to amend the articles; or
• change the circumstances where the articles cannot be amended by its shareholders.

A company’s articles of incorporation must be filed at the Companies Registry; however, the articles are not a matter of public record and are generally accessible only by its directors and its shareholders, unless the company consents to an inspection request. The same is true of any amendments thereto and there is no requirement to file a shareholders’ agreement or to make its terms public. 

See 1.3 Types or Classes of Shares and General Shareholders' Rights.

Members may vary shareholders’ rights by amending the company’s articles of association. According to Section 16 of the Ordinance this can be done by passing a resolution.

The Ordinance does not provide for any minimum share capital requirements.

By Section 89 of the Ordinance, following the appointment of its first directors, a company must have at least one member.

There are no qualification criteria in the Ordinance that restrict the shareholding or directorship of a company by residence, nationality, or otherwise. As such, there is no requirement for any shareholder to be resident in the jurisdiction.

That said, there are certain business activities that are restricted or reserved to Turks and Caicos Islanders, pursuant to the Business Licence Ordinance (Chapter 17.02) which would need to be considered upon incorporation. A company wishing to carry on business within these categories of business would need to ensure that at least 51% of its shareholding is held by Turks and Caicos Islanders.

Shareholders’ agreements and joint-venture agreements are enforceable in the TCI and are quite common, except where, for example, the company is merely a land-holding company or other holding company with no business or operational needs. In accordance with common-law principles, parties are free to contract on any terms, provided those terms do not limit or infringe any mandatory statutory provisions.

It would be particularly common to see shareholder agreements in place in companies operating a business which is reserved or restricted to Turks and Caicos Islanders under the Business Licensing Ordinance. These agreements would typically regulate the classes of shares issued to the individual shareholders and the voting rights attached.

Joint-venture agreements are not unusual in the construction sector, particularly in resort development.

Shareholders' agreements may contain almost any arrangements and usually cover matters that the shareholders prefer not to be made public. They typically include the following provisions:

• voting undertakings or voting restrictions that would otherwise require the creation of different classes of shares carrying special voting rights;
• entitlement of one of more shareholders to receive information about the company which is not available to other shareholders;
• restrictions against transfer, prohibiting one of the shareholders from selling, transferring, or encumbering shares without the prior written consent of the other shareholders;
• right of first refusal, requiring a shareholder who wishes to sell to provide the other shareholders with a right to match an offer received from a third party;
• buyout rights giving the company and/or the other shareholders the right to purchase shares owned by a shareholder in the case of particular events such as death, disability, bankruptcy, and marital dissolution;
• a purchase price formula for valuing shares to be purchased;
• a payment of purchase price clause which might require an “all cash” purchase price, or permit other means of funding the purchase; and
• buy-sell provisions which provide a mechanism to deal with fundamental disputes that may arise among the shareholders – these may include an independent valuation or pre-determined formula or a “shot-gun” provision.

Shareholders’ agreements and joint venture agreements also typically include alternative dispute resolution clauses, providing a staged approach to dispute resolution, such as attempts to informally resolve the dispute, mediation and then, as a last resort, arbitration or litigation.

These types of clauses are enforceable.

As shareholders’ agreements and joint venture agreements are private contractual relationships, there provisions will not be public unless made so by the parties, whether through litigation in open court or otherwise.       

The Companies Ordinance does not mandate that a company hold an annual general meeting, though its articles of incorporation may well do so, as well as making provision concerning the notice that must be given of an AGM, the ability to waive or shorten notice, the consequences of not providing due notice and the matters that must be discussed and approved at an AGM.

Subject to any requirement in the articles to give longer notice, the convener of a meeting of members shall give not less than seven days’ notice of a meeting to each person whose name, on the date notice is given, appears as a member in the register of members and who is entitled to vote at that meeting.

Subsection 94(2) of the Ordinance permits a meeting of members held in contravention of the requirement to give notice if members holdings a 90% majority of the voting rights on all the matters to be considered at the meeting (or such lesser majority as may be specified in the articles) have waived notice of the meeting.

The inadvertent failure to give notice of a meeting to a member does not invalidate that meeting.

A meeting of members may be called by the directors of the company or any other person as may be authorised by the articles; however, a director must call a meeting of shareholders if requested to do so by those shareholders entitled to at least 30% of the voting rights in respect of the matter for which the meeting is requested, or any lesser percentage as the articles may allow (Section 93 of the Ordinance).

Subsection 94(1)(a) requires that a notice of a meeting of members is given to each person who appears as a member in the company’s register of members.

In relation to information rights and the rights to inspect the company registers, Subsection 136(2) of the Ordinance provides that a member of a company is entitled, on giving written notice to the company:

• to inspect:
1. the articles;
2. the register of members;
3. the register of directors; and
4. minutes of meetings and resolutions of members and of those classes of members of which he or she is a member; and
• to make copies of or take extracts from the documents and records.

Subsection 136(3) goes on to provide that a director may refuse to allow a shareholder to inspect a document if they are satisfied that it would be contrary to the company’s interest to allow it. The shareholder may then apply to the Supreme Court for an order that he or she should be permitted access.

Unless there is something in the articles of a company to the contrary, the Ordinance provides that a member is deemed to be present at a meeting if the member participates by telephone or other electronic means and all members participating in the meeting are able to hear each other (Section 93(2)(b)). 

It was not uncommon in pre-pandemic times that members could attend a meeting via telephone or other electronic means. As an offshore location, it is not unusual for TCI companies to have members located in different jurisdictions and this was and continues to be a practical method of holding meetings. Of course, this has become a more frequent and accepted practice with the advancements in the virtual meeting rooms necessarily arising out of the global pandemic.

The quorum for a meeting of members for the purposes of a resolution of members is the quorum specified in the articles, if any.

If none is specified in the articles, a meeting of members is properly constituted if the members entitled to exercise at least 50% of the votes are present in person or by proxy (Section 95).

There are two recognised types of members’ resolutions in the Companies Ordinance, these are:

• an ordinary resolution, which requires a simple majority of more than 50% of the votes of those members entitled to vote and voting on the resolution or, if the articles require a higher majority, that higher majority; and
• a special resolution, which means a resolution approved by a majority of 75% or, if a higher majority is required by the articles, that higher majority, of the votes of those members entitled to vote and voting on the resolution.

Generally, it is the company’s articles that determine which kind of resolution needs to be passed; however, the Ordinance provides that a company cannot convert to a protected cell company unless the conversation is approved by a special resolution (Subsection 172(2)(b)).

The Ordinance provides several instances where authorisation or approval by a resolution of members is required to proceed. These include:

• mergers and consolidation (Section 208) – a plan of merger or consolidation must be authorised by a resolution of members; 
• disposition of assets (Section 213) – subject to a company’s articles, any sale, transfer, lease, exchange or other disposition of more than 50% in value of the assets of the company, if not made in the usual course of business by the company, must be authorised by a resolution of its members following approval by the directors;
• voluntary liquidation (Section 237) – a voluntary liquidator may be appointed and a liquidation plan approved in respect of a company by a resolution of its members; and
• removal of a director by special resolution (Section 114) – subject to the articles of a company, a director of a company may be removed from office by (i) a resolution of the members passed at a meeting of the members called for the purpose of removing the director or for purposes including the removal of the director, or (ii) a written resolution passed by at least 75% of the votes of the members entitled to vote.

Members may pass resolutions:

• at a meeting of members; or
• by way of written resolution.

Members may attend meetings in person or by proxy.

A company’s articles usually deal with the means by which votes are cast – ie, show of hands or by poll – and it would be the articles that set out the procedures for voting electronically, but in the absence of any procedures set out, the convenor of the meeting will give notice to the members of a company as to how they will be able to participate and vote on any particular matter.

In terms of the ability of a member to request that a particular matter be raised at the meeting, as previously mentioned, the directors of a company must convene a meeting upon the written request of members entitled to exercise at least 30% of the voting rights in respect of the matter for which the meeting is requested (Section 93(1)(b) of the Ordinance). This gives the members the power to require the directors to table a matter if they have not done so of their own volition.       

Any member can challenge the decisions adopted by a general meeting on procedural grounds (for example, for failure to give proper notice of the meeting or an inquorate meeting); however, depending on the circumstances, these decisions may still be enforceable. For example, as stated above, accidental failure to give notice will not invalidate these decisions.

A member who attended and voted at a meeting cannot claim that a resolution has not been passed when no such objection was raised at the meeting.

If a decision is thought to be unfairly prejudicial to a minority shareholder, that shareholder can bring an "unfair prejudice" claim. There is no minimum shareholding level for bringing such an action.

Subject to the articles of a company, members may pass a written resolution consenting to a decision that may otherwise be made by the members at a meeting of members. The resolution should be consented to in writing or “by telex, telegram, cable, or other written electronic communication, without the need for notice”. Such a resolution may consist of several documents, including written electronic communications, each signed or assented to by a member.

Directors are generally appointed by the shareholders of a company, unless the articles provide otherwise. Again, subject to the articles of a company, directors can be removed from office by a resolution of the shareholders (Section 114 of the Ordinance).

This right can only be exercised if a meeting is called by the shareholders for the purposes of removing a director or if a written resolution is passed by at least 75% of the votes of the shareholders of the company entitled to vote (Section 114(2) of the Ordinance).

The Ordinance does not provide any formal procedure for members to challenge a decision that has been taken by the directors and it is to be remembered that the business and affairs of a company shall be managed by, or under the direction or supervision of, the directors of the company.

That said, as dealt with above, a director may be removed from office by the members and members holding at least 30% of the voting rights can require the directors to call a general meeting and then seek to pass appropriate resolutions, providing the requisite voting majority can be obtained.

Members who are not satisfied with a decision of the board, or are aware that the required procedures or legal requirements were not followed (for example, the declaration of a director's interest in the matter under discussion was not declared), should raise the issue with the chairperson or other appropriate board member.

There is no formal procedure set out in the Ordinance or the Regulations for the appointment or removal of a company’s auditors. A company’s articles will generally deal with this and it would be usual to see a provision whereby the company’s auditors are appointed at the annual general meeting.

It is a requirement that all companies maintain a Register of Beneficial Owners of the company. A “beneficial owner” is defined at Section 146 of the Ordinance as a person (whether a natural person, corporate body or other registrable organisation or body) that:

• holds (directly or indirectly) more than 25% of the issued shares of a company;
• is entitled (directly or indirectly) to exercise or control the exercise of more than 25% of the voting rights of the company;
• has the right, directly or indirectly, to appoint or remove a majority of the directors of the company;
• has the absolute and unconditional right to exercise, or actually exercises, significant influence or control over the company; or
• has the absolute and unconditional right to exercise, or actually exercises, significant influence or control over the activities of a trust or partnership.

The company must then deliver notice to the Financial Services Commission (the FSC), setting out the particulars of each person who is registered in its Register of Beneficial Owners. The FSC will then register that information in the Register of Beneficial Owners of Companies which it maintains. The Register of Beneficial Owners of Companies is protected information that is not accessible by the general public. Except in respect of a request made by the Royal Turks and Caicos Islands Police Force pursuant to the Beneficial Ownership Registration Regulations, or any person otherwise authorised pursuant to those Regulations, it is an offence for the Registrar of Companies or any director, employee or agent of the Commission to disclose any information contained on the Register.

It is possible for shareholders to grant a mortgage or charge in shares in a company (Section 82 of the Ordinance). Any such security need not be in a specific form, but it must be in writing and clearly indicate the intention to create a mortgage or charge, as well as the amount secured. If shares are subject to a mortgage or a charge, this information must be included in the company’s register of shareholders.

Subject to any limitations or restrictions in a company’s articles, a share in a company is transferable (Section 74 of the Ordinance). Shares are transferred by a form of transfer that is signed by the transferor and contains the name and address of the transferee. The transfer form will be sent to the company for registration in the register of members (Section 76) and takes effect once it is so entered (Section 76(8)). 

Subject to any provision in the company’s articles to the contrary, it is possible for the directors to resolve to refuse or delay the registration of the transfer for reasons to be set out in the resolution, including if the transferor fails to pay an amount due in respect of the shares. If such a resolution is passed, the company must send the transferor and transferee notice of the refusal or delay. 

Other than in businesses that are reserved or restricted to Turks and Caicos Islanders pursuant to the Business Licensing Ordinance, there are no legal or regulatory restrictions on the disposal of shares in ordinary companies; however, where the company is a land-holding company, the transfer of shares will attract transfer duty unless the transfer is exempted.

The TCI courts will respect the shareholders’ freedom of contract and it is possible for shareholders to restrict or regulate the transfer of shares by way of a shareholders’ agreement or otherwise in the company’s articles. There are no restrictions on the enforcement of such agreements, and the TCI courts will follow the common law principles as applied in the courts of England and Wales and the Commonwealth in this regard.

The declaration and payment of dividends are usually dealt with in the company’s articles. Other than in respect of protected cell companies, there are no legal requirements contained in the Ordinance to be satisfied when paying a dividend.

The most common forms of distributions are:

• dividends; and
• redemptions or purchases of any of the company's own shares out of distributable profits.

The Insolvency Ordinance (Chapter 16.18) (the Insolvency Ordinance) applies when a company is insolvent. Pursuant to Section 159 thereof, the members of a company may, by a qualifying resolution, appoint an eligible insolvency practitioner as liquidator of the company.

Following the appointment of a liquidator to the company, each member and director is entitled to attend the creditors' meeting (Section 36).

A claim by a person who is or was a member of a company, in the character of member, whether by way of dividend, profits, redemption proceeds or otherwise, ranks in priority after the claims of other creditors, including creditors with postponed claims, who are not members, together with interest at the judgment rate (currently 6% per annum) on the claims of such creditors (Section 207).

Any surplus assets remaining after payment of the costs, expenses and claims shall be distributed to the members in accordance with their rights and interests in the company.

Part XIV of the Ordinance, entitled Members’ Remedies, enables members to take action against the company by:

• obtaining a restraining or compliance order in the event that a company or its directors engage in conduct that contravenes the Ordinance or the company’s articles (Section 225);
• commencing personal actions by shareholders for breach of a duty owed by the company to that shareholder (Section 230); and
• initiating representative actions in the event that a shareholder of a company brings proceedings against the company and other shareholders have the same or substantially the same interest in relation to the proceedings (Section 231).

A member of a company who considers that the affairs of the company have been, are being or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to them in that capacity, may apply to the Supreme Court for an order under Section 232 of the Ordinance. If the Court considers it just and equitable to do so, available remedies include:

• in the case of a shareholder, requiring the company or any other person to acquire the shareholder’s shares;
• requiring the company or any other person to pay compensation;
• regulating the future conduct of the company’s affairs;
• amending the company’s articles;
• appointing a receiver of the company;
• appointing a liquidator of the company under the Insolvency Ordinance;
• directing the rectification of the records of the company; and
• setting aside a decision made or action taken by the company or its directors in breach of the Ordinance or the articles.

As described in 7.1 Remedies against the Company, in relation to actions against the company itself, Section 225 of the Ordinance enables a member to apply to the court for an order restraining a director from engaging in conduct that contravenes the Ordinance or the company’s articles.

In addition, Sections 226–229 of the Ordinance provide the statutory basis for derivative actions by members. The court may grant leave to a member to bring proceedings in the name and on behalf of the company, or to intervene in proceedings to which the company is a party, for the purpose of continuing, defending or discontinuing proceedings on behalf of the company. In considering whether to grant such an application, the court will consider the conduct of the directors of the company and whether or not it is in the interests of the company to leave the conduct of proceedings on behalf of that company to the directors.

Subject as always to any provisions in a company’s articles to the contrary, members may also vote to remove or revoke the appointment of a director by way of resolution.

When it comes to the exercise of members’ remedies under the Ordinance, there is no distinction made between majority and minority shareholders. 

As described in 7.2 Remedies against the Directors, shareholders may bring derivative actions on behalf of the company, pursuant to Section 226 of the Ordinance.

Shareholder activism in the TCI takes the form of positive engagement in the company’s affairs and oversight of those charged with the management and administration of those affairs – the directors. In so doing, shareholders will utilise the remedies available to them pursuant to Part XIV of the Ordinance entitled “Members’ Remedies” or the provisions of Part XII in respect of mergers and consolidation of companies. 

It is common to see strategies employed by shareholders to acquire a majority stake in a company in order to have greater control over the direction a company might take. There have been strategic moves by shareholders in, for example, condo-hotel development companies, in an effort to attain uniformity in the approach to complex strata title disputes and/or to ensure compliance with rental management programmes. This firm has also advised in a high-profile application for the winding-up (as it was known under the previous iteration of the Ordinance) of a TCI holding company by shareholders on the just and equitable basis.

Typically, a shareholder who wishes to build their stake in a company will seek to engage on a commercial level with other shareholders to acquire their stake. This will be a matter of negotiation and fixing on a price that meets both sides’ expectations. There may well be provisions regarding this in a company’s articles or, more usually, in the shareholders’ agreement, that regulate this type of activity.

It would also not be uncommon to see other avenues deployed to ensure that the company follows a particular course. Examples of this activism might include:

• seeking to control the board by either putting themselves forward to sit on the board, putting forward strategic nominations and/or seeking the removal of other directors;
• influencing individual board members ahead of decisions being taken to persuade them to take a particular course;
• active participation at general meetings and ensuring their concerns are aired and directors challenged on areas of particular concern;
• putting pressure on the board members by bringing areas of concern to the public arena, for example, highlighting any issues that might cause reputational damage, particularly in the hospitality or tourism sector, which is of such importance to the TCI economy;
• exercising their voting rights to block the passage of certain resolutions; and/or
• exercising the legal remedies available, including commencing a derivative action on behalf of the company, an unfair prejudice claim or, as a last resort, applying for the compulsory liquidation of the company on a just and equitable basis.

In the absence of a stock exchange and publicly listed companies in the TCI, market-capitalisation trends are not overly relevant to shareholder activism here.

The main industry in the TCI is the tourism and hospitality sector and so market trends in that area will influence shareholder activism. Naturally, this sector was the one of the most gravely affected by the closure of the borders and other restrictions on operations in response to the COVID-19 pandemic, which will have had an impact. Conversely, given the traditional focus on high-end luxury tourism and villa development in the TCI, the market has become increasingly attractive to investors which, again, will have an impact on the economy generally and, as a result, the make-up of companies operating here.

It is difficult to tell whether there is a particular type/group of shareholders that is more active than others when dealing with private companies, as opposed to those that may be publicly listed. The classes of shares issued in a company is essentially a matter of contract between the shareholders of a company and is not publicly available information.

There are no public activist demands and therefore no publicly available information in the TCI in relation to them.

How a company responds to the actions of an activist shareholders will depend on the attitudes of the remaining shareholders and the directors of the company to the actions being taken and whether the actions of a particular shareholder are considered hostile or friendly.

A company, through its directors, will need to monitor shareholder activity and engage with shareholders to ensure that any such activity is being managed effectively and with the interests of the company at the forefront.