On July 8th, 2016, The Limited Liability Companies Law, 2016 (the “LLC Law”) was enacted in the Cayman Islands. Beginning July 13th, 2016, clients will be able to form limited liability companies (“LLCs”) in the Cayman Islands, existing Cayman companies will be able to convert into an LLC (via a special resolution of the members of the exempted company) and foreign companies may merge or be consolidated into a Cayman LLC.
New Cayman LLC Based on Delaware’s LLC Act: Removes Requirement for Share Capital
The new LLC has a separate legal personality much like the Cayman’s Exempted Limited Companies; however, these corporate vehicles will not have the restraint of having share capital. To maintain some uniformity with other types of Cayman corporate vehicles, the Cayman LLC will retain elements of a Cayman Exempted Limited Company and the Exempted Limited Partnership (i.e. member liability to be limited by members’ capital accounts and capital contributions; allocating profits and losses in a manner similar to those for partners in an exempted limited partnership). Also, the LLC Law is based in part on the Delaware Limited Liability Company Act and, thus, incorporates the flexibility of the Delaware LLC. Therefore, the normal benefits of an LLC will apply: member liability is limited, it is member managed or manager managed and members have the freedom to regulate the internal operations of the LLC through the Operating Agreement (the “LLC Agreement”).
When Wayne Patton, Minister of Financial Services, presented the bill to the Legislative Assembly, he stated that this hybrid approach (blending key characteristics of the Caymans Exempted Limited Companies, Caymans Exempted Limited Partnership and the Delaware LLC) will be “useful in a variety of investment business spaces.” He implied that the LLC was developed primarily with the funds industry in mind, stating “Given the position of the Cayman Islands as a leading jurisdiction for investment fund formation, an LLC will increase the versatility and attractiveness of our financial services products…”1
Here are the most anticipated business uses for a Cayman LLCs:
- LLC acting as General Partner of the Exempted Limited Partnership
- Special Purpose Acquisition vehicles
- Open ended and closed ended fund structures
- Close ended private equity structures; and outside of the funds framework
- Standalone corporate entities, to include joint ventures and holding companies
How to Form a Cayman LLC
So, how does one form a Cayman LLC? You simply have to file a Registration Statement with the Registrar of Limited Liability Companies and pay the required fee. Then all of the members of the LLC will enter into an LLC Agreement as governed by the new LLC Law. The LLC will be bound by the terms of its LLC Agreement, which does not have to be filed with the Registrar. Much like the current Exempted Companies requirements, the Register of Members, Register of Managers and Register of Mortgages will be maintained but will not be accessible to the public without a Court Order or the company’s consent. In addition, every January, the LLC will have to file its annual return signed by the company certifying that it has complied with the LLC Law.
The LLC has been a much anticipated addition to limited companies and limited partnerships as entity types in the Cayman Islands and is expected to bolster Cayman’s position as a leading offshore jurisdiction.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.