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- July 13, 2016
- by Melisa Johnson
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After years of consultation and collaboration, the Limited Liability Company Law, 2016 was passed into law in the Cayman Islands with a commencement date of July 8, 2016, enabling the establishment of limited liability companies (“Cayman LLC”). The Cayman LLC is the result of substantial expressions of interest from the U.S. investment funds industry, with strong support from the Cayman Islands government and local industry interests.
The Cayman LLC is a versatile and flexible legal vehicle that combines aspects of the Delaware LLC, Cayman exempted companies, and exempted partnerships. Upon registration, it is a body corporate with a separate legal personality and limited liability for its members. It should be noted, however, that the Cayman LLC is not designated as an exempted entity.
A Cayman LLC can be formed by any one or more persons for any lawful business, purpose or activity, whether or not for profit, provided it has at least one member. Members can agree to an LLC Agreement which is conceptually equivalent to Articles of Association or Limited Partnership Agreement. However, unlike the Articles of Association of Limited Partnership Agreement, the LLC Agreement need not be filed with the Registrar of Limited Liability Companies (the “Registrar”).
A Cayman LLC is formed by filing with the Registrar a registration statement (with the required fee) setting out:
- the name of the LLC;
- the address of its registered office in the Cayman Islands;
- the duration of the term of the LLC if it has not been formed for an unlimited duration; and
- a declaration that the LLC will not undertake business with the public of the Cayman Islands other than what is necessary to carry on the business of the LLC outside of the Cayman Islands.
Although not necessary, the name of the LLC may state “Limited Liability Company”, “L.L.C.” or “LLC”, unless the LLC is carrying on business on special economic zone business in which case the name must include “special economic zone” or “SEZ”.
Upon completion of these requirements, the Registrar will issue a certificate of registration and this will serve as conclusive evidence that the LLC has complied with all relevant requirements under the LLC Law. The members of the LLC can enter into an LLC Agreement at any time before, after, or at the time the registration statement is filed, although an Agreement entered into before the registration statement is filed will become effective on the date this statement is filed.
A Cayman LLC must have a registered office situated in the Cayman Islands, but there are no residency requirements for managers or members of the LLC. The place for holding meetings of LLC members or managers need not be in the Cayman Islands unless required by the LLC Agreement.
Any change to the LLC’s registration statement details must be filed with the Registrar within 30 days of the change.
The liability of members to third parties is limited to the amount the member’s agreed contribution to the assets of the LLC, but the LLC Agreement may contain other more extensive provisions, including, for example, an undertaking to contribute to the LLC’s by providing services or property.
The management of an LLC is vested in its members acting by a majority in number, unless otherwise stated in the LLC Agreement. There may also be more than one manager or classes of managers for specified classes, for example. Under the Law, the managers will not owe a fiduciary or other duty to the LLC other than to act in good faith, but this can be expanded or restricted by the LLC Agreement. The LLC may also divide the management into different boards or committees. A manager may also be a member.
The LLC must maintain a register of members and their addresses, and the date each became or ceased to be a member, and a register of its mortgages and charges. The register of members is not open to inspection by the public, and may be kept at any location other than the registered office, but the latter is obligated to have a record of the current address of the register.
Interests in an LLC are transferable in whole or in part, in accordance with the LLC Agreement.
Subject to compliance with the prescribed filings, an LLC can also be transferred by way of continuation into or out of the Cayman Islands. An exempted company (other than a segregated portfolio company) may also be converted into an LLC.
Two or more LLCs may also merge or consolidate, in accordance with the requirements of the LLC Law.
An LLC may also apply for an undertaking from the Governor for the standard tax concessions (currently 50 years) relating to profits, capital gains, estate duty, inheritance tax, etc.
And as to be expected, the LLC must file an annual return and pay a prescribed fee on or before January 31st in every year, with penalties for late payments.
Because of its “agile” features, the LLC is well-suited to hedge and private equity funds, joint ventures (obviating the need for a separate shareholder’s agreement and memorandum and articles), SPVs or holding companies, and basically any structure where a Delaware LLC can be used.
For more information or if you have any queries with respect to the contents of this article, please contact you AMS representative.