The Cayman Islands is recognised as one of the world's premier financial and banking centers. The Cayman Islands is home to approximately 11,000 mutual funds registered with the Cayman Islands Monetary Authority ("CIMA"), the jurisdiction's primary regulator. These funds presently hold over US$2 trillion in assets. In addition to these mutual funds, there are a significant number of private equity and other private funds not requiring registration with CIMA; and the value of the assets held by these entities, is also substantial. In addition to the presence of a large number of funds and due to its high standard of living, tax neutrality, sophisticated infrastructure and economic and political stability, the Cayman Islands are also home to many wealthy individuals.

With such an abundance of wealth, many foreign entities seek to market and otherwise sell securities in the Cayman Islands to Cayman Islands funds and investors. There is a general prohibition in the Cayman Islands against foreign entities carrying on business without appropriate registration and/or licensing in place and as such any marketing or sale of securities to Cayman Islands investors should be taken with extreme care so as not to fall foul of Cayman Islands law.

Foreign Company Registration

Where a foreign company desires to conduct business in the Cayman Islands, in accordance with Section 184 of the Companies Law (Revised) of the Cayman Islands (the "Companies Law") it must register as a foreign company and file certain documentation with the Registrar of Companies. The Companies Law defines "foreign company" to mean an overseas company which (1) establishes a place of business or (2) commences carrying on business within the Cayman Islands. An "overseas company" is defined as a company, body corporate or corporate entity existing under the laws of a jurisdiction outside the Cayman Islands. The Companies Law defines "place of business" to include a share transfer or share registration office. The Companies Law does not generally define "carrying on business"; however, in relation to the definition of foreign company, the Companies Law specifies that it includes, without limiting the generality of the term, the sale by or on behalf of an overseas company of its shares or debentures and offering, by electronic means, and subsequently supplying, real or personal property, services or information from a place of business in the Cayman Islands or through an internet service provider or other electronic service provider located in the Cayman Islands.

The Local Companies (Control) Law (Revised) (the "LCCL") and the Trade and Business Licensing Law (Revised) (the "TBBL")

The LCCL provides that no company shall carry on business in the Cayman Islands unless it is at least 60% controlled by Caymanians or it is licensed under the LCCL and the TBBL. Any company which fails to comply with the LCCL will be liable to criminal penalties. The LCCL defines "company" to mean a company incorporated in the Cayman Islands by virtue of the Companies Law and also a "foreign company" registered under that law or purporting to carry on securities investment business without a licence or a licence exemption.

Securities Investment Business Law (Revised) (the "SIBL")

The SIBL is designed to regulate "securities investment business" and covers activities relating to the provision of investment services and private placement of investment funds as well as other financial services. Any person, company or partnership (whether general, limited or exempted) which is incorporated or registered in the Cayman Islands (or which is incorporated or registered outside the Cayman Islands but has an established place of business in the Cayman Islands) and is carrying on securities investment business must hold a licence issued by CIMA unless they qualify for an exemption from this requirement. Exemptions fall into two categories. The first set of exemptions lists activities which are not considered to fall within the definition of securities investment business. These exemptions take the person carrying on such activities outside the scope of the SIBL entirely. The second set of exemptions relates to "Excluded Persons" which, for example, includes persons carrying on securities investment business exclusively for a sophisticated person1, a high net worth person2 or a company, partnership or trust of which the shareholders, unit holders or limited partners are all sophisticated persons or high net worth persons. A person who satisfies one of the second set of exemptions may still be subject to certain provisions of the SIBL.

Mutual Funds Law (Revised) (The "Funds Law")

The Funds Law is the primary legislation concerning mutual funds in the Cayman Islands. A mutual fund is defined under the Funds Law as a "company or a unit trust or a partnership that issues equity interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors in the mutual fund to receive profits or gains from the acquisition, holding, management or disposal of investments." It should be noted in this context that: (i) "company" also includes foreign companies, "unit trust" includes a foreign unit trust and "partnership" includes foreign partnerships, general or limited, but excludes general partnerships constituted under Cayman Islands law; (ii) to be considered an "equity interest", a share or unit or interest must be redeemable or repurchasable at the option of the investor and as such, closed-end funds (i.e. private equity funds) are excluded from the definition; and (iii) "equity interest" excludes debt and therefore a fund which only issues debt instruments would not be regarded as a mutual fund for these purposes.

A mutual fund must not carry on or attempt to carry on business in or from the Cayman Islands without a licence unless: (a) it is an unregulated mutual fund, (b) it is what we shall refer to as a "private" fund, or (c) it falls within the exemptions for a licence under the regulated mutual fund provisions of the Funds Law. "To carry on or attempt to carry on business in or from the Cayman Islands" means that the mutual fund is incorporated or established in the Cayman Islands or, regardless of where it is incorporated or established, a mutual fund ("Foreign Fund") which makes an invitation to the public in the Cayman Islands to subscribe for its equity interests. An invitation to any the following persons (which is a non-exhaustive list) may constitute an invitation to the public in the Cayman Islands: (i) individuals who are resident in the Cayman Islands; (ii) ordinary resident Cayman Islands' companies, except to the extent that the investors or offer is made to such companies exclusively outside of the Cayman Islands; (iii) the Cayman Islands' offices of foreign companies doing business locally in the Cayman Islands; (iv) partnerships established under Cayman Islands law and engaged in local business in the Cayman Islands; and (v) trustees of trusts established primarily for the benefit of individuals resident in the Cayman Islands (collectively, the "Cayman Public").

An invitation to any the following persons will not constitute an invitation to the Cayman Public: (i) Sophisticated Persons (as defined above); (ii) High Net Worth Persons (as defined above); (iii) the Cayman Islands Stock Exchange, CIMA, the Cayman Islands Government and any authority created by the Cayman Islands Government; (iv) persons carrying on securities investment business for one or more Sophisticated Persons, High Net Worth Persons or entities where the investors are Sophisticated Persons or High Net Worth Persons; (v) exempted or ordinary non-resident companies registered under the Companies Law; (vi) foreign companies registered under Part IX of the Companies Law; (vii) any company listed in (v) or (vi) immediately above that acts as general partner to a partnership registered under Section 9(1) of the Exempted Limited Partnership Law (Revised); (viii) any director or officer of the entities listed in (v),(vi) or (vii) immediately above acting in such capacity; and (ix) the trustee of any trust capable of registration under Section 74 of the Trusts Law (Revised) acting in such capacity (collectively, the "Cayman Non-Public").

Further, in the event that a Foreign Fund is making an offer of equity interests to the public in the Cayman Islands it will not need to be registered in the Cayman Islands where they do so: (i) by or through an entity licensed under the SIBL; and (ii) either: (a) the equity interests are listed on a stock exchange approved by CIMA; or (b) the Foreign Fund is regulated by an overseas regulatory authority approved by CIMA.

Directors Registration and Licensing Law (Revised)

Depending on the proposed scope of the activities to be conducted and therefore the licensing applicable to the entity in question, registration and licensing of directors may also be required. Directors of (i) a company to which paragraphs 1 and 4 of Schedule 4 of the SIBL apply; or (ii) a mutual fund regulated under the Funds Law are required to register with CIMA prior to the registration of the mutual fund and or registration of the applicable company under SIBL.

Immigration Law (Revised)

The Immigration Law provides that all non-Caymanians require a work permit in order to carry on any gainful occupation in the Cayman Islands. A work permit is required regardless of the time period involved and, accordingly, would be required if a representative of a foreign company came to the Cayman Islands to conduct the business of the company irrespective of where the person was being remunerated.


What activities constitute the carrying on of business within the Cayman Islands and therefore require Cayman Islands registration, license(s) and/or permissions?

The answer to such question will depend on the applicable facts as determined on a case by case basis. By way of example, the sale of shares of a Foreign Fund to the Cayman Public from outside the Cayman Islands may not of itself constitute carrying on business within the Cayman Islands. Similarly, marketing and sales through a web site would not constitute carrying on business. However, if the web site is interactive and allows investors to conclude transactions over the internet it may be arguable that business is being conducted within the Cayman Islands. Having company personnel visit the Cayman Islands, even for short periods, in order to distribute marketing and promotional material may constitute carrying on business in the Cayman Islands and a license would be required where contracts were concluded within the Cayman Islands (i.e. a subscription agreement).

Foreign entities seeking to market and otherwise sell securities in the Cayman Islands to Cayman Islands funds and investors should not do so without first determining whether such activities would constitute the carrying on of business within the Cayman Islands. Determining precisely when certain activities will constitute engaging in a trade or business in the Cayman Islands will depend upon the exact facts and circumstances of the particular case. Factors which will play into the determination of this issue include, inter alia, the frequency of the activities in question, their scope and overall nature and import. Where activities are determined to constitute engaging in a trade or business in the Cayman Islands, applicable registration, licensing and permissions will need to be sought.


1. A "Sophisticated Person" is someone regulated by CIMA or an overseas regulatory authority recognised by CIMA or whose securities are listed on a recognised securities exchange or who by virtue of knowledge and experience in financial and business matters is reasonably to be regarded as capable of evaluating the merits of a proposed transaction and participates in each transaction with a value or in monetary amounts of at least CI$80,000 (approximately US$100,000).

2. A High Net Worth Person is an individual whose net worth is at least CI$800,000 (approximately US$1,000,000) or any person that has total assets of not less than CI$4,000,000 (approximately US$5,000,000).

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.