Types of Business Entity Structure in Cayman Islands
- Shraddha Khattri
- Nov 9, 2023
- 13 min read
The Cayman Islands, a British Overseas Territory nestled in the Caribbean Sea, stands as a prominent offshore jurisdiction. It owes its allure to the remarkable flexibility of the Cayman Islands' "Companies Law." Remarkably, this region serves as a vital offshore financial hub, drawing investors from far and wide. Surprisingly, the territory's revenue predominantly stems from indirect taxation, as it doesn't impose income tax, capital gains tax, or corporation tax.
However, there's more to the Cayman Islands than its financial prowess. The islands also boast a thriving tourism industry, contributing significantly to their revenue. Beyond tourism, the Cayman Islands offer a diverse array of professional services, encompassing banking, company formation, insurance, funds management, vessel and aircraft registry, and even its own stock exchange.
For entrepreneurs and investors exploring their options, the Cayman Islands present a compelling choice. Now, let's explore the multitude of reasons that drive businesses to invest and establish their business entities in this extraordinary destination.
An Overview of Business Entities Available in the Cayman Islands:
Resident Company
A standard resident company conducts its business operations within the Cayman Islands. These resident companies have the obligation to maintain a register of both current and former members at their registered office, which is accessible for public review. Additionally, they are required to submit annual reports to the Registrar, disclosing the particulars of members, directors, and the extent of paid-up capital. Furthermore, this category of company is permitted to own land in accordance with the criteria outlined in the Companies Law.
Advantages
A resident company can carry out business within the Cayman Islands.
It is allowed to hold land as defined under the Companies Law.
A single person can assume the role of director and/or shareholder in the Cayman Islands, and there is no need for them to reside in the Cayman Islands.
There is no minimum capital requirement for company formation in the Cayman Islands.
The Cayman Islands is an ideal jurisdiction for corporations to base subsidiary businesses to shield some or all their income from taxation.
The Cayman Islands legal regime provides a high degree of commercial confidentiality.
The fees charged for company formation are generally low compared to other Caribbean countries.
Companies do not require a resident director to be appointed.
Non-Resident Company
A typical non-resident company is one that has obtained non-resident status by applying to the Minister of Finance through the Registrar of Companies. This status is contingent upon the company's declaration of not intending to conduct business within the Cayman Islands. While these companies are allowed to engage in transactions involving shares of exempted companies, foreign corporations, and partnerships, they are limited to conducting only such business within the Cayman Islands that is essential for the advancement of their foreign operations.
These non-resident companies are obligated to maintain a register of both current and former members at their registered office, which is accessible for public examination. Additionally, they are required to submit annual reports to the Registrar, providing details about members, directors, and the extent of paid-up capital.
It's worth noting that a non-resident company has the option to convert into either an ordinary resident company or an exempted company. For their registered office, these companies are mandated to engage a service provider licensed by the Cayman Islands Monetary Authority (CIMA).
Advantages
A non-resident company is not allowed to carry on business within the Cayman Islands, which means it is not subject to local taxes.
It can deal in shares of exempted companies, foreign corporations, and partnerships, but may only carry on such other business in the Cayman Islands as is necessary for the furtherance of its foreign business.
A non-resident company can be converted to an ordinary resident company or to an exempted company.
There are no requirements for an exempted company to have its accounts audited unless the company is a bank, insurance company, or licensed or regulated by the Cayman Islands Monetary Authority (CIMA).
Exempt Company
When a company's intended operations are primarily conducted beyond the borders of the Cayman Islands, in an offshore capacity, prospective registrants have the option to seek registration as an exempted company.
As per the 2020 (Revised) Companies Law, an exempted company primarily conducts the majority of its business activities outside the Cayman Islands. In terms of its legal structure, an exempted company possesses a unique legal identity that enables it to perform all the functions of a fully capable natural person, independent of corporate advantages, and it enjoys perpetual succession.
Key features
Non-public Register of Members: Exempted companies are not obliged to maintain a register of members open for public scrutiny, a requirement imposed on resident and non-resident companies.
No Mandatory Annual General Meeting: Unlike resident and non-resident companies, exempted companies are not obligated to hold an annual general meeting within the Cayman Islands.
Flexible Alteration of Memorandum and Articles: Exempted companies have the freedom to modify their Memorandum and Articles of Association without restrictions, with a condition to notify the Registrar of any such alterations.
Share Issuance Flexibility: These companies are permitted to issue shares with either nominal or no par value.
Multi-Currency Capital Expression: Exempted companies can express their capital in any currency or even in multiple currencies.
Annual Return Declaration: In their annual return to the Registrar, exempted companies must declare that there have been no changes to the Memorandum of Association, that they have adhered to the provisions of the Companies Law, and that their operations have primarily taken place outside the Cayman Islands.
Advance Notice for Strike-off: The Registrar is required to provide one month's notice before initiating the process to strike off an exempted company.
No Requirement for "Limited" in Name: Exempted companies are not compelled to include the word "Limited" or the abbreviation "Ltd." after their name.
Name Acceptance: To register, the company's chosen name must align with the criteria specified in section 30 of the Companies Law. Additionally, the company must submit a declaration to the Registrar, affirming that its operations will predominantly occur outside the Cayman Islands.
Types of Exempted Company
Limited Duration
Segregated Portfolio
A) Limited Duration Company - This particular form of exempted company, while still safeguarding limited liability for its members if desired, offers the potential for favorable treatment as a partnership in select jurisdictions. Known as an LDC (Limited Duration Company), its existence continues until a specified time or event mentioned in its Memorandum of Association. However, this duration cannot exceed 30 years, and it necessitates at least two members. Once its designated time frame expires, it automatically initiates voluntary winding up and dissolution, although it can be wound up prematurely if its members pass a special resolution to that effect. Creditors of the LDC can also pursue compulsory liquidation, and members have recourse to it under circumstances similar to other companies established under the Companies Law.
B) Segregated Portfolio - The Segregated Portfolio Company (SPC) represents a specific type of exempted company. Under PART XIV of the Companies Law, this provision allows any exempted company, a company through continuation, or an exempted limited duration company to undergo re-registration as an SPC. In its name, this company must incorporate either "Segregated Portfolio Company" or "SPC."
An SPC enables the separation of assets and liabilities among individual portfolios, often referred to as "cells," from both the general assets of the overall company and other portfolios. It's important to note that each portfolio, while distinct in its asset and liability allocation, is not considered a separate legal entity.
In addition to the annual return mandated for an exempted company, a segregated portfolio company is also required to submit a return detailing all activities and changes within its portfolios over the course of the year.
Limited Liability Company (LLC)
When a company intends to primarily conduct its activities outside of the Cayman Islands, it has the option to seek registration as a Limited Liability Company (LLC) under the Limited Liability Companies Law. The Cayman LLC is a unique legal entity that combines aspects of both a partnership and an offshore corporation. Similar to companies governed by the Companies Law, an LLC enjoys a separate legal identity, which means that its members cannot be held personally responsible for the company's debts or obligations.
However, unlike Companies under the Companies Law, an LLC does not have a traditional share capital structure. Instead, members of an LLC acquire LLC interests. The management of an LLC is entrusted to its members and/or designated managers.
Key Advantages of a Cayman LLC:
Tax Efficiency:
Corporations in the Cayman Islands are not taxed on income earned abroad.
No income tax is imposed on profits generated outside the Cayman Islands, including dividends and interest from investments.
Note: U.S. citizens and residents of countries with global income taxation must report all income to their tax authorities.
Capital requirements:
No Minimum Capital Requirement:
No obligation to maintain a minimum capital level for LLC formation.
Privacy Focus: Simple registration process with the Registrar, without public disclosure of member or manager names.
Control Flexibility: The LLC Agreement offers substantial flexibility for members to determine power distribution among members, managers, and external parties, with the only restriction being prevention of dishonest or fraudulent activities.
Adaptability: The LLC Agreement can specify the method of profit and loss allocation, as well as members' voting rights, with the ability to modify these terms as needed.
Streamlined Formation: LLCs can be established by a single member through the submission of a straightforward statement to the Cayman Islands Registrar.
Managerial Options: The law permits the appointment of one manager or the selection of a manager via majority vote of the members to oversee the LLC.
Consolidation and Conversion:
Cayman LLCs have the flexibility to merge with foreign entities and continue operating as LLCs.
Other Cayman legal entities can easily transition to become LLCs through a simple Registrar filing.
Office Address and Local Agent:
A local office address is mandatory for a Cayman LLC.
A local registered agent is also required.
Membership Structure:
Instead of shareholders, Cayman LLCs have members.
Member privileges and rights are determined by the LLC Agreement.
Limited Liability:
Sole liability for the LLC's debts, liabilities, and obligations rests with the LLC itself.
Members and managers are shielded from personal liability, except in cases where they are directly involved in the actions giving rise to such debts or liabilities.
Accounting and Audit Requirements:
Cayman Islands imposes no specific standards for bookkeeping or financial statement recording for LLCs.
No mandatory audits are required for Cayman LLCs.
Annual General Meeting: Cayman LLCs are not obligated to hold annual general meetings.
Foundation Company
A foundation company is an independent legal entity that can be established by an individual, referred to as the "founder," for any legal purpose. This purpose doesn't necessarily have to benefit others; it just needs to fall within the broad legal boundaries defined by the relevant legislation, such as the Foundation Companies Law and Companies Law. The foundation company's governing documents are its memorandum and articles of association.
It's important to understand that the Foundations Law doesn't exist as a separate, standalone statute. Instead, it functions as an extension of the Companies Law, with appropriate adjustments made to apply to all Cayman Foundations.
Key Features:
Constitution: A foundation company’s constitution may grant any person the right to become a member. It can cease to have members if (i) its memorandum permits, and (ii) it continues to have a supervisor, being a person, other than a member, who has a right to attend and vote at general meetings. Once it has no members, a Caymans foundation company is not able to admit new members or issue shares unless its constitution permits it to.
Corporate Status: A foundation company is a body corporate with a legal personality distinct from its members, directors and other connected persons.
Bylaws: In addition to a foundation company’s constitution, it is possible for a foundation company to adopt its own tailored bylaws in order to modify or expand upon its management and operation. Utilizing bylaws has the advantage of being a private document separate from the constitution, which does not need to be filed with the Register (unlike the constitution), and can offer more flexibility through amendment over time.
Secretary: A foundation company must have a Secretary, licensed to provide company management services in the Cayman Islands. The foundation company’s registered office must be at its Secretary’s registered office.
Court Intervention And Resolution Of Disputes: The firewall provisions of the Trusts Act apply to foundation companies providing protection against claims in foreign courts. Similarly, the ability of a trustee of a Cayman Islands trust to apply to the Grand Court has been extended to foundation companies, offering assistance in contentious and non-contentious situations.
Tax Treatment: A foundation company is not subject to any income, withholding or capital gains taxes in the Cayman Islands. Members or beneficiaries of a foundation company will not be subject to any income, withholding or capital gains taxes in the Cayman Islands with respect to their interests, nor will they be subject to any estate or inheritance taxes in the Cayman Islands.
Favorable for DAOs, DEFI and Crypto: On account of their flexible nature, there is almost no limit to how a foundation might be structured and used in connection with crypto projects. For example, a foundation can be used as a legal ‘wrapper’ , Act as a service provider for DAOs and defi projects, Act as a fundraising vehicle for early stage and VC private funding , Hold a projects treasury assets, Provide a vehicle for airdrops, Provide marketing and development services for NFTs, P2E games and metaverse projects etc.
Associations Not for Profit
If an association intends to become a limited company and can demonstrate to the satisfaction of the Governor that its purpose is to advance commerce, art, science, religion, charity, or any other beneficial objective, and it is committed to utilizing any profits or income for the promotion of those objectives while prohibiting the distribution of dividends to its members, it can be registered under Section 80 of the Companies Law as a limited liability company without the inclusion of the word "limited" in its name. Non-profit associations are not obligated to disclose their name, share a list of their members with the Registrar, or pay an annual fee.
However, if such companies meet the legal criteria to be classified as Non-Profit Organizations (NPOs), they must additionally register as NPOs under the Non-profit Organizations Law of 2017.
Key features:
Key Features of the Cayman Islands' Non-Profit Organizations (NPO) framework include:
Legal Purpose: The NPO framework in the Cayman Islands is established to meet the recommendations of the Financial Action Task Force (FATF) to combat money laundering and terrorist financing. It aims to ensure that NPOs operating in the country are known entities and are subject to monitoring.
FATF Compliance: The Cayman Islands, a member of the Caribbean Financial Action Task Force (CFATF), is committed to implementing FATF Recommendations to safeguard against terrorist financing.
Exemptions: Certain NPOs are exempt from the law, including those regulated by a government entity, trusts with trustees comprising licensed trust companies, or entities specifically exempted by Cabinet.
Registration Requirement: NPOs are not allowed to solicit contributions from the public without registration or exemption under the law.
Registration Process: The registration process typically takes around 30 days. The Registrar of Non-Profit Organizations has the discretion to refuse registration for various reasons, including incorrect information or a name that violates specified guidelines.
Public Register: A register of non-profit organizations is maintained by the Registrar, which contains information about the NPO's name, address, purposes, activities, ownership, registration date, and other relevant details. This register is open for public inspection.
Financial Reporting: Controllers of NPOs are required to prepare financial statements that accurately reflect the organization's financial transactions and position. Review of financial statements by an independent qualified accountant may be required if the NPO meets specific income and remittance criteria.
Annual Returns: Annual returns containing prescribed particulars must be prepared and submitted to the Registrar within six months of the end of the financial year.
Streamlined Process: The NPO registration process under the new law is more efficient, with shorter timeframes for registration and changes, as well as reduced fees compared to the previous Section 80 regime. This enhances compliance with international standards.
Overseas Company
An overseas company, often referred to as a foreign company, is a company that has been established outside the jurisdiction of the Cayman Islands. To engage in activities such as owning land, conducting business operations within the Cayman Islands, or serving as the general partner of a Cayman Islands Exempted Limited Partnership, these foreign companies must undergo registration as outlined in Part IX of the Companies Law.
Key Features:
Key features of Operating as a Foreign Company in the Cayman Islands include:
Complete Ownership: In many cases, foreign companies can have full ownership and control of their businesses in the Cayman Islands.
Zero Taxation: The Cayman Islands imposes no local taxes on foreign companies. They are only subject to taxation in their home country based on their tax laws.
Limited Shareholder Liability: Shareholders' liability is typically limited, protecting their personal assets from business liabilities.
Privacy: The names of directors and shareholders are not publicly disclosed. If a "nominee shareholder" arrangement is in place, these rules may not necessarily apply to you.
No Minimum Authorized Capital: Foreign companies are not required to maintain a minimum authorized capital.
Simplified Structure: Only one shareholder and director are required, streamlining the corporate structure.
Minimal Reporting: There are no obligations for annual reporting, audits, or the submission of annual accounts, reducing administrative burdens.
Special Economic Zone Company
A special economic zone company is granted permission to conduct business within a special economic zone in accordance with the current laws in the Cayman Islands. Part VIIIA of the Companies Law allows for the re-registration of existing exempt companies as special economic zone companies. To undergo this transition, these companies must amend their memorandum of association to express their intent to engage in special economic zone activities. Furthermore, their company name must incorporate either "special economic zone company" or "SEZC."
If, at any point, these companies decide to discontinue their operations within the special economic zone, they have the option to either remain on the register as exempted companies through re-registration or choose to be removed from the register.
SEZCs (Special Economic Zone Companies) in the Cayman Islands enjoy a range of special concessions, including:
Simplified Company Formation: The process of establishing a company within the special economic zone is straightforward and streamlined.
Taxation Benefits: SEZCs are not subject to corporate profit, capital gains, or personal income taxes.
Foreign Ownership: SEZCs can have 100% foreign ownership, promoting international business interests.
Import Duty Exemption: These companies are granted a full exemption from import duties, reducing operating costs.
Fast-Track Setup: SEZCs benefit from a rapid 4-6 week setup process, which includes obtaining business licenses and work visa approvals.
Reduced Fees: Import duties, business licensing, and work visa fees are reduced, making it more cost-effective to do business.
Residency for Employees: Employees and their dependents can secure a five-year residency status.
Unlimited Company
In the scenario of an unlimited company, all of its shareholders or members face unrestricted liability. They collectively, separately, and without limitations hold the obligation to cover any shortfall in the company's assets for settling outstanding debts in the event of the company's liquidation. The articles of such companies must specify the intended number of members for registration and, if the company has shares, the proposed share capital amount for registration.
Exempted Limited Partnership
The Exempted Limited Partnership Law (2018 Revision), commonly referred to as "the Law," facilitates the swift establishment of limited partnerships tailored for offshore investors. It's important to note that such partnerships are not permitted to conduct business with the general public within the Cayman Islands, except when it is essential for conducting business outside of Cayman.
The Law allows for the registration of partnerships that have already been set up in a different jurisdiction. Additionally, Cayman Islands ELPs have the option to deregister and transition to the legal framework of another jurisdiction.
ELPs are obligated to submit a return and pay the associated fee. This fee becomes due in January of the initial year following registration and must continue to be paid in subsequent years.
Key Features:
The main characteristics of Exempted Limited Partnerships (ELP) are as follows:
Tax Benefits: ELPs, including their partners, are not subject to inheritance, income, capital gains taxes, or estate duty.
Flexible Partnership Structure: Partners in an ELP can take on the roles of general or limited partners, and these partners can be corporations with or without limited liability.
Registrar Records: The Registrar is responsible for maintaining records for each partnership, which are open for public inspection. To complete the registration, a statement must be filed, including the following details:
A name that must include "Limited Partnership" or "LP."
The partnership's primary business location and nature.
The partnership's duration or term.
Names and addresses of all general partners.
A declaration that the partnership will not engage in public business within the Cayman Islands except when necessary for its operations outside the Cayman Islands.
Disclaimer: To explore the ideal entity type for your business and receive expert guidance, feel free to reach out to us at team.offshorelawyer@gmail.com. We're here to support you in making well-informed decisions that can pave the way for your business's success. Thank you for reading our blog, and we look forward to assisting you on your entrepreneurial journey.
Comments