By Sarwar A. Kashmeri
For the Valley News
For the Valley News
In the 1960s, Bermuda (population 66,163) enacted legislation to permit corporations to set up captive insurance subsidiaries on the island. The word “captive” derives from the fact that these special-purpose companies are wholly owned by a corporation and insure only that company's products and services.
Once established, these captives collect premiums from their parent company. Premiums are tax-deductible so the parent company saves on taxes; but because it has paid the premiums to itself, it still has control of the cash, which can be invested. Bermuda has no corporate tax, which means yet more revenue. Not a bad deal any way one looks at it.
Law firms, banks, accounting firms, computer systems providers, investment advisers and insurance specialists all set up shop in Bermuda to service the captive insurance sector. The canny Bermudians grew an entire industry out of thin air, dash and elan (all attributes that have existed in Bermuda since the days of the pirates!) and asked only to keep a small percentage of the money generated through this business. Even a small percentage of a lot of money is a lot of money, and Bermuda is far and away the leading captive insurance market in the world.
And the second-biggest captive insurance market in the world? Against all odds, it's Vermont.
Creative legislation has allowed a thriving captive insurance industry to grow up here over 25 years and the results are impressive: 42 of the Fortune 100 companies and 19 of the companies that make up the Dow 30 have captives in Vermont, and 2007 brought the 800th captive insurance company to the state. The industry generates $23 million in revenues and provides jobs to 1,400 Vermonters.
Companies don't even have to come to Vermont to get started. There is an interactive form at http://http://www.vermontcaptive.com/ that gets them going and teams of advisers to ensure their captive is in conformance with state and federal laws.
This is a job- and money-producing business that any Vermonter can learn to love: environmentally pristine, part of the creative economy, negligible energy consumption, virtually no carbon dioxide emissions, and a potential market that stretches from sea to shining sea.
Vermont state Rep. Alison Clarkson, D-Woodstock, (aclarkson@leg.state.vt.us) said she believes this approach to creating jobs and wealth in Vermont has so much potential that she'd like to make Vermont the country's foremost “E-State,” not just in terms of providing broadband but “to make it possible for corporations that incorporate in Vermont to do much more of their work online,” she told me.
This will require substantial amendments to Vermont's statutes, and she introduced legislation during the session just ended to enable companies “to use the Internet more effectively and actually function on the Web -- file online, hold meetings online, and conduct more and more of their corporate business online,” she said.
House Bill 458 (“An Act Relating to Digital Corporate Transactions”) proposes to amend the statutes governing corporations and limited liability companies to address organizational and operational activities, including matters pertaining to share and stock ownership, voting, the conduct of meetings, and the use of electronic documents and means of communication.
Other countries allow corporations to be formed online, “but no state in this country, that I am aware of, does. There is a huge demand for it and we might become the first state to permit it,” Clarkson said.
The bill would create another niche industry, just like captive insurance, giving Vermont “first-mover” advantages with sizeable annual fees for incorporating here.
“It is perfect for us,” Clarkson said, “in keeping with the state's objective to increase the size of the creative economy. It will create supporting jobs and lure young creative workers to the state.”
(The bill, incidentally, is also another example of the close cooperation that exists between the Vermont Law School and the Legislature: It was the law school that brought this opportunity to the Legislature's attention.)
Unfortunately the commerce committee's workload prevented it from acting on the bill in the last session, although the committee did take testimony on it and the legislation has wide bipartisan support, according to Clarkson.
She said she expects there will be some work done on the bill during the remainder of the year so that “we can hit the ground running in the next session that begins in January 2008, and ensure Vermont gets all of the first-mover advantages,” she said.
I certainly hope this bill sails through the Legislature. It represents the kind of thinking that Vermont and New Hampshire should focus on for tomorrow's jobs and to create an environment that will draw and keep the next generation of Vermonters. After all, both states have a substantial advantage over Bermuda: Vermont's population is about nine times larger than Bermuda’s, and New Hampshire’s is 18 times larger.
If there is a downside to passing this enlightened bill, it is this: Vermonters are likely to ask their esteemed legislators whether, in this always-on Internet-driven world, can the Legislature really afford to take a six-month break between sessions?
***
Sarwar Kashmeri is the author of the recently released book America & Europe After 9/11 and Iraq: The Great Divide. He is a fellow of the Foreign Policy Association, a strategic communications adviser, and lives in Reading, Vt. Readers may comment on Kashmeri's blog:www.sakbizcol.blogspot.com
