The Cayman Islands Government has published a "green bill" for a Law to provide for the formation and registration of Limited Liability Companies: and to provide for incidental and connected purposes (the "LLC Bill") when enacted into law this will create a new type of Cayman Islands vehicle, the limited liability company (an "LLC"). The LLC Bill has been developed by Government and the Cayman Islands regulator, the Cayman Islands Monetary Authority, in consultation with representatives from industry bodies, including Campbells. This new vehicle will be of interest to promoters of investment funds and their service providers.
The LLC Bill is expected to be enacted into law during the first half of 2016. Hence the LLCvehicleis not available yet.
The full LLC Bill can be found by clicking here.
While current Cayman Islands fund vehicles (exempted companies, exempted partnerships and unit trusts) will continue to serve the industry and its promoters well, an LLC will offer some flexibility which is not currently present in certain Cayman Islands structures. An LLC should allow (1) for more flexible and straightforward administration of the tracking and calculation of a member's investment in a fund, without the need to reference shares and the rigidity of share capital; (2) certain flexibility in corporate governance concepts; and (3) for a closer synergy between the legal frameworks for onshore vehicles and offshore vehicles, particularly useful in a master/feeder structure with a parallel Delaware onshore feeder (usually an LLC) to the Cayman Islands offering.
An LLC is a versatile entity with the combinedbenefitsof the two main vehiclesused in fund formation being an exemptedcompany and the exempted limited partnership; it will essentially be a hybrid of the two. An LLC, in common with an exempted company (but unlike a limited partnership), will be a body corporate with a separate legal personality. However, an LLCmay maintain the accounting, contractual and record keeping flexibility of an exempted limited partnership because it is not constrained by being limited by shares or by guarantee. Further, unlike a limited partnership, an LLC will not need to have its mind and management in a separate general partner entity as it will have its management vested in a 'manager' who may, or may not be, a member of the LLC.
An LLC will be easy to register and registration is similar to the registration of an exempted limited partnership with only the initial registration statement needing to be filed. The LLC must have at least one member, its member(s) benefit from limited liabilityand it may be formed for any lawful business, purpose or activity. An LLC may be managed by one or more managers who may or may not be a member. The LLC will need to maintain certain registers (being a register of members, managers and mortgages and charges) and may, but need not, include "Limited Liability Company", "LLC" or "L.L.C." in its name.
The members have substantial contractual freedom to agree the management and mechanics of the LLC vehicle in a written operating agreement (defined in the LLC Bill as the "LLC agreement") which must be governed by Cayman Islands law. Appropriate minimal safeguards and a framework are set out in the LLC Bill (such asminimum statutory duties for members/managers, record keeping requirements and insolvency provisions).The LLCBill allows for the conversion of a Cayman Islands exempted company into an LLC and also the migration into the Islands of foreign entities to register as an LLC.
The LLC will be a new vehicleand, as such, there is no Cayman Islands jurisprudence on LLCs. Therefore, the LLC Bill expressly states certainkey features of an LLC to provide clear guidance to promoters and their service providers alike. To the extent that they are relevant to an LLC, the LLC Bill seeks to preserve the rules of equity and common law which are applicable to exempted limited companies and exempted limited partnerships.
Further details will follow about the specifics of an LLC when the LLC Bill is enacted into law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.