On January 2nd 1996 the Societies with Restricted Liability Act 1995 was proclaimed in Barbados bringing into force legislation that allowed for another form of business association in the rapidly developing financial sector of the island. 

An SRL, as these entities have become known, is neither a company nor a partnership, but is rather a hybrid entity which has been designed to take advantage of the significant benefits that can be obtained by having the status of a corporation in Barbados, if its by-law are so constructed, but being classified for U.S. tax purposes as a partnership. It is similar in many respects to the Limited Liability Companies that are well utilized in civil law jurisdictions. 

An SRL has the following characteristics:   

• a maximum life of 50 years;
• automatic termination SRL on the occurrence of certain events for example the death of a member;
• the ability to have limited liability status;
• the legal personality of an individual;
• restrictions placed on the right of transfer of quotas in the society;
• the ability to apply for and be granted exempt status that will allow it to benefit from special tax concessions.

• a sliding rate of tax from a maximum of 2.5% to 1%;
• exemption from all withholding taxes;
• tax credit on taxes paid outside Barbados, but only for an amount that will reduce the tax payable in Barbados to the 1% maximum;
• the ability to import free of duty machinery or materials for use in the business;
• the ability to pay 35% of the income of a needed foreign employee in foreign currency.

The rules provide for certain entities to be automatically classified per se corporations, for instance, the Barbados International Business Corporation. Where an entity, such as an SRL, is not automatically designated a per se corporation, it must 'check the box' and indicate whether it wishes to be classified for tax purposes as a corporation, a partnership or a branch of a corporation. Failure to make an option will result in a default classification being given to the entity based on the characteristics which the entity has at that time. An option when made cannot be changed within sixty (60) months of making the option. 

The status of SRLs already in existence at the date on which the rules came into effect will be determined by looking at the classification given to it before the rules came into effect. For instance, if an SRL was classified as a partnership before the rules it will retain this classification provided: 

• there is a reasonable basis to its claim to being a partnership;
• the classification as a partnership has been consistently claimed over the years;
• none of the members of the SRL have been notified of a change in its classification before.

• continuity of life;
• centralized management;
• limited liability;
• free transferability of interest in the society.

Exempt SRLs are designed for use in international transactions and are treated as IBCs for the purposes of taxation and other concessions. The rate of tax is similar to that imposed on an IBC namely on a reducing basis from 2.5% to 1%. These types of SRLs are precluded from holding or acquiring land in Barbados other than as leasehold land and like IBCs, they are precluded from transacting business with residents of Caricom.  

Non-Exempt SRLs, unlike exempt SRLs and IBCs, are allowed to transact business within the Caricom region and indeed within Barbados. The society is taxed at the normal corporate rate of a Barbadian company and it may however take advantage of any benefits available under Barbados' double taxation treaties, which presently number seven (7) including treaties with the United Kingdom, the United States and Canada.   

It should be noted that participation by residents of the Caricom region including Barbados in SRLs is not restricted to 10% of the equity as with IBCs and Exempt SRLs, a significant difference for local investors. 

Both types of SRLs are formed by filing Articles of Organization with the Registrar of Companies. A Certificate of Organization is issued by the Registrar prior to the commencement of business. An exempt SRL must also obtain a license before it commences its operations.   

An SRL must have at least one manager who must be elected on an annual basis and two (2) members. The manager's duties to the SRL are akin to a Director's duty to a company. The manager must, subject to any restrictions which may be imposed by the by-laws, exercise the powers of the SRL and direct the management and business of the SRL. The manager must call an annual meeting at which the business akin to that held at the annual meeting of the shareholders of a company is to be conducted. 

Evidence of participation in the equity of an SRL is signified by the holding of quotas in the society. Quotas are personal property but are not freely transferable as the ability to transfer is dependent on the consent of other members. An SRL may issue as many classes of quotas with such rights, privileges, restrictions and conditions as its Articles provide. Like shares in a company, there are of no par value and may not be issued until the full amount of the consideration has been paid in cash or property. 

A Non-Exempt SRL must have a registered office in Barbados, whilst an Exempt SRL must in addition have a registered agent in the island.   

There is free corporate mobility under the legislation in that an SRL may migrate to Barbados or emigrate from Barbados, if the jurisdiction it is moving to or from has laws permitting same. With respect to emigration, this will only be permitted by the Registrar if the emigration will not adversely affect its creditors or members.   

Confidentiality is ensured in that disclosure of information is limited to that which is filed with the Registrar of Companies. Financial statements need to be filed annually. 

Under the legislation, it is possible to receive a written guarantee from Government that the Exempt SRL will obtain the benefits of the legislation such as the special tax concessionary rate for thirty (30) years. 

SRLs are required to file tax returns and financial statements in the same manner as companies. Those with year-ends prior to September 30th must file by the following March 15th, and all others by the following June 15th. Prepayment of tax is required and this is based on a percentage of the tax payable in the previous year's return.   

The legislation allows for accounting books and records to be kept outside of Barbados, but adequate accounting records still need to be kept in the island to allow the managers to ascertain the financial position of the society with reasonable accuracy. Where the gross assets of the society or its Gross Revenues exceed US$500,000, a qualified local auditor must be appointed. 

SRLs may be organized by paying:   

• a Government fee and license of $500.00
• Professional fee of $1,500.00
• some miscellaneous charges which will be determined according to the amount and type of communication with the client.

• Corporate secretarial services $1,000-2,000 (including provision of a registered office)
• Provision of a local manager $1,000-2,000
• Tax compliance services $1,000-2,000
• Audit $2,500-7,500
• Accounting $1,000-3,000