The Cayman Islands Introduces a New Vehicle: the Limited Liability Company
The Cayman Islands published a bill for a new law on 18 December 2015 to allow for the formation of a new Cayman Islands vehicle: the limited liability company (an "LLC").
The introduction of the LLC responds to requests from the investment funds industry. It takes its inspiration, in part, from the Delaware limited liability company.
The flexible nature of the vehicle means that it will also be well-suited to a broad range of general corporate and commercial applications.
The introduction of the LLC is expected to further cement the Cayman Islands' position as the domicile of choice for offshore investment funds and structuring vehicles.
Following the publication of the "green bill" on 18 December 2015 (the "Bill"), it is expected that the Bill may become law as early as January 2016, although will not enter into force until a separate commencement order is published. This is expected during the first half of 2016.
Maples and Calder has been at the centre of this initiative from inception, working closely with the Cayman Islands Government and industry participants, and is ideally placed to advise with respect to LLCs.
This webcast reflects on the impact of the LLC in the months since the first available registration date. With guest speaker Hon Wayne Panton, MLA, Minister of Financial Services, Commerce and Environment alongside panelists from the Maples group.
What is an LLC?
An LLC is essentially a hybrid vehicle, combining certain characteristics of a Cayman Islands exempted company with those of a Cayman Islands exempted limited partnership.
In developing the Bill, certain Delaware concepts were taken into consideration and adapted, where appropriate, to mesh with Cayman Islands law and concepts.
In short, an LLC is a body corporate with separate legal personality, like a Cayman Islands exempted company, but without the constraint of having share capital.
The liability of the LLC's members is limited. Members can have capital accounts and can agree amongst themselves (in the LLC agreement) how the profits and losses of the LLC are to be allocated and how and when distributions are to be made (similar to a Cayman Islands exempted limited partnership).
An LLC can be member managed (by some or all of its members) or the LLC agreement can provide for the appointment of persons (who need not be members) to attend to the management of the vehicle. There is considerable flexibility, allowing the governance of the LLC to be structured as the parties prefer.
Why has Cayman created a new vehicle?
The main Cayman Islands vehicles available for structuring transactions are the exempted company, the exempted limited partnership and the trust. These vehicles are likely to remain as popular as ever but the Cayman Islands Government has responded to requests, particularly from the investment funds industry, to offer an additional structuring solution.
For funds industry applications in particular, the ability to provide greater symmetry with onshore vehicles in onshore-offshore fund structures allows for greater ease and cost efficiency of fund administration and will help to better align the rights of investors between the different vehicles in the structure.
For general corporate and commercial applications, such as joint venture companies, management holding vehicles, carried interest distribution vehicles or general partner entities, the flexibility of the vehicle will be appreciated.
Key Features of an LLC
(a) An LLC is a body corporate with separate legal personality and limited liability.
(b) An LLC may be formed for any lawful business, purpose or activity.
(c) Members of an LLC may have capital accounts and make capital contributions, with profits and losses allocated amongst those members as provided in the LLC agreement (like a Cayman Islands exempted limited partnership or akin to a Delaware limited liability company).
(d) An LLC requires at least one member and may be managed by a "managing member" or by a non-member or non-members.
(e) The registration of an LLC is simple and will be familiar to those used to registering a Delaware limited liability company – registration requires the filing of a registration statement (similar to the filing to register a Cayman Islands exempted limited partnership) and payment of the appropriate fee.
(f) An LLC affords considerable flexibility to its members to agree among themselves the internal workings and management arrangements of the LLC (subject to certain statutory minimums), which is recorded in an LLC agreement (which does not need to be filed with the Cayman Islands Government).
(g) Consistent with OECD commitments, an LLC is required to maintain (and make available to the Cayman Islands authorities, if required) three statutory registers:
(i) a register of members;
(ii) a register of managers; and
(iii) a register of mortgages and charges.
Similar to a Cayman Islands exempted company, the only register which is required to be filed with the Registrar in the Cayman Islands, as a matter of course, is the register of managers (in a manner similar to the register of directors and officers of a Cayman Islands exempted company).
(h) The Bill preserves certain rules of equity and common law, providing a foundation and guide to interpretation which the Cayman Islands courts may draw upon, to the extent necessary.
(i) The Bill addresses minimum statutory duties in the context of members and managers.
(j) The Bill provides for the conversion or merger of a Cayman Islands exempted company into an LLC and for the inward migration of non-Cayman Islands entities to re-register as LLCs.
(k) An LLC may (but is not required to) use one of the following suffixes in its name: "Limited Liability Company", "LLC" or "L.L.C.".
(l) An LLC may apply for a 50 year tax undertaking certificate from the Cayman Islands Government in similar terms to an exempted company, an exempted limited partnership or an exempted trust.
We will provide further updates as the Bill moves through the legislative process, and once the commencement date for the new law is set.