We are all familiar with the infrastructure that we see every day: buildings, roads and the power and communication network. The infrastructure of a company on the other hand is a less visible ‘landscape’. The infrastructure of a company refers to the basic organizational structure to run an effective operation. It consists of many elements like people, procedures and policies. This article aims to offer a quick peek in the infrastructure of an Aruban company. More specifically, we will look at effectively structuring the management and supervision of an Aruban company.
Before we look at the internal workings of an Aruban company, it is important to note that Aruban companies can be structured in different ways. The most common legal forms to structure an Aruban company are:
- the limited liability company (vennootschap met beperkte aansprakelijkheid or VBA)
- the public limited liability company (naamloze vennootschap or NV)
- the Aruba exempt company (Aruba exempt company or AVV) (originally created for off shore purposes)
Management vs. supervision
To run a company effectively, it is crucial to distinguish between management and supervision. Managing a company consists of deciding in which direction the company is going and taking care of the daily tasks and obligations of the company, like hiring personnel, paying bills and undertaking business activities. Supervising a company mainly consists of checking whether the management is functioning smoothly and giving advice where necessary. Logically, in start-ups and smaller companies there is less need for formal supervision, but for a healthy company and to prevent problems it is important that there is always some sort of check on the management.
One-tier vs. two-tier board
When choosing a legal form for your company it is important to consider how you wish to structure the management and supervision. The different legal forms offer different options in that regard. A VBA can choose for a one-tier or two-tier board model. The one-tier board model consists of a managing board in which some directors have a management function and other directors have a supervisory function. The two-tier board model consists of two boards: a managing board of managing directors that manages the company and a supervisory board of supervisory directors that supervises and counsels the managing board. The VBA cannot adopt a one-tier and a two-tier board model at the same time.
NV’s and AVV’s cannot adopt a one-tier board. NV’s and AVV’s have a managing board with managing directors only. They can choose to add a supervisory board or not. They cannot add supervisory directors to the managing board like a VBA. However, of course they can make an informal distribution of managing and supervising tasks.
Foundation of the company: the articles
A document that provides the foundation for how the company functions is called the articles of incorporation or the articles of association, in short “the articles” (statuten).The choice between a one-tier board or a two-tier board must be included in the articles of the VBA. If the NV’s and AVV’s wish to install a supervisory board, they also need to state that in the articles. The articles can be amended at a later date.
An Aruban company is managed by one or more managing directors. At the incorporation of the company the managing directors are appointed for the first time in the articles. The managing directors can be natural persons or legal entities (for AVV’s a legal entity has to meet some further requirements before it can act as managing director; for VBA’s additional conditions can apply in some cases).
After the incorporation the shareholders of the company, in the form of the general meeting of shareholders, are authorized to appoint and dismiss managing directors, unless the articles provide differently. For a VBA, the articles can state that another entity than the shareholders can appoint and dismiss managing directors.
All managing directors are authorized to represent an Aruban company by themselves, unless the articles provide differently. For example, the articles can provide that for some actions the signature of two managing directors is required or that for some actions the written approval of the supervisory board is necessary. These restrictions can be invoked against third parties if they are properly registered with the Chamber of Commerce.
One of the board of managing directors most important legal obligations of the managing board is to make the annual accounts and publish the annual report.
Supervisory directors have the right to receive all information necessary to perform their supervisory tasks. The expected benefit of a one-tier board is that supervisory directors in the one-tier board will receive such information faster, because they are members of the same board. This also means that they can act the moment they see that the company’s policy is heading in the wrong direction.
The supervisory directors in a one-tier board are also expected to perform quicker supervision, because they are responsible and liable for the actions of their fellow one-tier board on the same foot. It remains to be seen if this is truly the case. Because of the close proximity between the managing and supervisory board directors, it might also be harder to criticize decisions. Moreover, liability towards third parties of managing directors in a two-tier board model for their mismanagement of the company often leads also to liability of the supervisory directors as well. Therefore, supervisory directors in a two-tier board model have the same incentive to provide good supervision.
Besides having one or more managing directors, the AVV and VBA (in some cases) must be represented by a legal representative (wettelijke vertegenwoordiger). This legal representative is not a managing director, but he is authorized to represent the Aruban company to a large extent. For example, he has the authority to report to, register and file at the commercial register of the Chamber of Commerce, submit tax returns, request a business license and maintain contacts with other Aruban authorities. The legal representative must be an Aruban trust office.
To be permitted to operate an Aruban company it is also necessary to obtain the necessary business and directors licenses from the Department of Economic Affairs.
For more information regarding the incorporation and functioning of Aruban companies, check our online Guide to Doing Business in Aruba.