The object of this Memorandum is to provide information on the formation and operation of the different varieties of company available in the Cayman Islands. We would, however, strongly recommend that our clients consult local tax specialists in their own jurisdictions to ensure the effectiveness of their proposals.
TYPES OF COMPANIES
The Companies Law of the Cayman Islands provides for a category of companies which will carry on business mainly outside the Islands. Such companies - called "exempted companies" - provide the vehicle that we would normally recommend to clients wishing to form a corporate body for offshore business.
Exempted companies are unsurpassed in the offshore financial world for flexibility, sophistication and speed of incorporation.
The key features of exempted companies are set out below.
- An exempted company is entitled to receive a tax-free
guarantee from the Government of the Cayman Islands for up to
30 years. The Government in the first instance normally
grants a guarantee for 20 years, but it is normally renewable
for a further ten years on expiry.
- The identity of the shareholders of an exempted company
are not a public record and are not known by any Governmental
authority in the Cayman Islands.
- Annual reporting requirements are minimal and consist
only of a statement, signed by the company secretary or a
director, that the company has conducted its operations
mainly outside the Cayman Islands and has complied with the
provisions of the Companies Law.
- The law permits an exempted company to issue bearer
- The name of an exempted company need not include the word
Limited or the abbreviation Ltd. However,
if the company is to be a limited duration company (see
below), the name must contain the words Limited Duration
Company or the abbreviation LDC.
- The law permits an exempted company to issue shares
without nominal or par value.
- An exempted company may deregister itself in the Cayman
Islands and transfer by way of continuation to another
jurisdiction whose laws allow or do not prohibit the
transfer. Similarly, a company incorporated in a jurisdiction
elsewhere may register by way of continuation as an exempted
company in the Cayman Islands.
Limited Duration Companies
A recent amendment to the Companies Law now allows an exempted company to be established as, or converted into, a limited duration company ("LDC"). The intent of the law is to allow the formation in the Cayman Islands of an entity similar to what is known in the United States of America as a Limited Liability Company and allows the establishment of such a company offshore. An LDC can be converted back to an exempted company upon payment of a de-registration fee of US$488.00.
An LDC continues until the time or event specified in its Memorandum of Association. Its duration must not exceed 30 years. An LDC is required by statute to have at least two members. Upon its duration expiring or the happening of a specified event, an LDC is deemed to have automatically commenced voluntary winding up and dissolution. An LDC may be wound up earlier voluntarily if the members pass a special resolution to that effect. Compulsory liquidation remains available to creditors of the LDC and also for its members in the circumstances applicable to other companies incorporated under the Companies Law.
Special features applicable to an LDC are set out below.
- The Articles of Association of an LDC may provide that
the transfer of any share of a member requires the unanimous
resolution of all other members.
- The Articles of Association of an LDC may provide that
the management of the company is vested in the members either
equally per capita or in proportion to their share
holding. The members are then considered to be the directors
of the company. However those members can delegate management
to a board of directors.
- Subject to any contrary provision in its Memorandum and
Articles of Association, an LDC is taken to have commenced
voluntary winding up on the expiry of 90 days from:
(a) the death, insanity, bankruptcy, dissolution, withdrawal, retirement or resignation of a member; or
(b) the redemption repurchase or cancellation of all the shares of a member; or
(c) the occurrence of any event which in terms of the Memorandum or Articles of Association terminates the membership of a member,
unless there remain at least two members of the company and they resolve unanimously to continue it in existence.
The LDC has been designed to be on all fours with "Limited Liability Companies" and as a result to receive treatment by the Internal Revenue Service as partnerships. They do however have many aspects of corporate existence, including separate personality and limited liability.
Approval for a non-resident company designation may be obtained on submission of a certificate to the Financial Secretary of the Cayman Islands that the company does not intend to carry on business in the Cayman Islands.
The non-resident company is an alternative offshore vehicle to the more commonly used exempted company. The law requires a non-resident company to maintain a publicly available register of past and current member at the Registered Office. Furthermore a director or secretary is required to file an annual return to the Registrar of Companies stating the names and addresses of members, directors and officers and the amount of paid-up capital. Although non-resident companies are unable to receive a tax-free guarantee from the Government they are presently not subject to any form of taxation in the Cayman Islands.
Re-registration of a non-resident company as an exempted company is easily achieved and preserves the basic structure of the company.
Companies may be formed with or without limited liability and in the former case may be limited by shares or limited by guarantee. Companies may also have classes of both limited liability shares and unlimited liability shares. Usually, companies are formed with limited liability and are limited by shares.
Upon receiving the following information by letter, telefax or telephone, we can proceed to incorporate the company, usually within 24 hours of receipt of instructions. The Registrar of Companies normally issues a Certificate of Incorporation within 2-3 days of filing. The information we require is set out below.
A proposed name of the company with two alternatives, which we will submit for approval.
The status of the company, ie exempted, LDC or non-resident. We normally recommend an exempted company or an LDC for offshore business.
Limited or guarantee
Is the company to be limited by shares or by guarantee? A company will normally be limited by shares.
Authorised share capital
Under the present laws we would normally recommend that a company be incorporated with an authorised capital of US$50,000.00. This figure is just short of the maximum authorised capital permitted for payment of the minimum Government fee.
Issue of capital
We need to know the amount of share capital to be issued, any special classes of shares (with details of special provisions), and what the par value of the shares will be.
Details are required concerning the name and the address of each beneficial owner of the shares, whether the shares are to be in registered or bearer form, and the number of shares the company will issue to each shareholder. Even if the shares will be bearer shares or will be held by nominees for the beneficial owner, the full name and address of each beneficial owner must be provided. We do not recommend bearer shares because of the inherent security risks and the problems associated with shareholder actions. In addition, the Government's policy is that we must know our client. The identity of the beneficial owners is kept confidential.
If the company is to be limited by guarantee, we will need to know the names and addresses of the guarantors, the amount of each guarantee and whether or not it is to have a share capital and guarantors.
Will the company have restricted objects? If so, what are they?
Directors and officers
Details of the names and addresses of the directors and officers are required. A minimum of one director is required but we would recommend that at least two directors be appointed. We would also recommend the appointment of a company secretary, but suggest that a sole director should not also be company secretary.
The address of the registered office in the Cayman Islands is required. This facility can be provided by Walkers.
We need the names of the company's bankers if a bank account is to be opened in the Islands, and the signatories to operate the account. It should however be noted that most banks operating in the Cayman Islands will only accept new accounts upon receipt of bankers references on the principals involved and a receipt of a minimum initial deposit (normally at least US$500.00).
Do the directors of the company require an overseas seal? It should be noted that the company's common seal is normally kept at the company's registered office.
We need three professional references on each director, shareholder and beneficial owner of shares, from a firm of accountants or attorneys or from another reputable source.
FEES AND DISBURSEMENTS
Our legal fees for an exempted company include filing of standard Memorandum and Articles of Association, obtaining the Tax Undertaking, holding initial subscriber's shares and organising directors' meeting, issuing subscriber's share certificate and preparing registers.
Our legal fees for an LDC include work done as for an exempted company, together with Special Resolutions pursuant to s196 of the Companies Law (as amended) to continue the company in existence following transfer of the shares issued to the subscriber.
All other services in relation to the specific requirements of the client, including special provisions in the Memorandum or Articles of Association, powers of attorney and bank accounts, will be charged in accordance with our usual billing practices.
Initial registration fees
These usually amount to approximately US$320.00 for each type of company and include stamp duty, filing fees, seal, nameplate and notarial fees. We also advise clients to apply for a Tax Undertaking Certificate for a one-off fee of US$610.00. Whilst this is optional, it gives clients comfort that no law enacted in the Cayman Islands after the date of the Undertaking imposing tax on profits, income or capital gains will apply to the company or its operations, and nor will any tax in the nature of estate duty or inheritance tax apply on or in respect of the shares, debentures or other obligations of the company. Although no such taxes currently exist or, to our knowledge, are contemplated, our clients invariably apply for this Undertaking for the additional certainty it provides.
It is a statutory requirement that every Cayman Islands' company maintains a registered office in the Cayman Islands. Following the incorporation of a company, Walkers would be pleased to provide registered office facilities. Our fees for this service are pro-rated for each part of a calendar year and are set out below:
In addition, miscellaneous disbursements will be payable each year and additional administrative services will be charged on a time-spent basis.
The Cayman Islands have no exchange control laws. There is therefore no restriction on the movement of assets in or out of the Cayman Islands either by residents or non-residents of the Islands. Further, bank accounts may be kept in any currency available at the local banks, and the company's share capital may also be expressed in a currency suitable to the requirements of the beneficial owners.
TYPES OF OPERATION
Companies can be established in the Cayman Islands for any type of offshore business and subject to receiving the necessary work permits, offices may be set up in the Cayman Islands with local directors, management and staff.
Clients are advised to seek professional advice in their own country on the proposed operations of the company and the question of share ownership before proceeding.
Banks and trust companies
Banks and trust companies are regulated in the Cayman Islands by the Banks & Trust Companies Law (as amended). Many international banks and trust companies establish branches or subsidiaries in the Cayman Islands to handle their Euro-dollar transactions or to provide conventional banking or trust facilities for their offshore clients. In addition it is possible to establish private banks either to carry on offshore business generally or on a restricted basis for specified objects. All such operations are strictly controlled by the Cayman Islands Government and we refer you to our Memorandum on the subject for further information.
Insurance companies are regulated in the Cayman Islands by the Insurance Law. Many insurance companies are established in the Cayman Islands, most of them being so-called "captive insurance companies". These are usually established by major international corporations as "in-house" insurance companies or by groups of individuals who are associated by a common interest to provide an insurance cover for risks of the parent or group. Some advantages of establishing a captive insurance company are:
- to insure risks that the normal insurance market will not
- by controlling the membership of the group or the
activities of the parent, to reduce the incidence of claims
and thus reduce premium levels;
- to create a profit centre in an offshore environment
which may result in tax savings; and
- to obtain direct access to the reinsurance market.
For further information on Insurance Companies please refer to our Memorandum on Insurance Companies in the Cayman Islands.
The Cayman company takes orders direct from the customer in the export market and has the goods shipped direct from the manufacturers. The difference between the purchase and sale price is then accumulated in the Cayman Islands and can be utilised as a fund which may be utilised to develop further markets or used for investment purposes. Trading companies can be utilised by either the buyers or sellers of the goods.
Funds accumulated through such companies can be invested or deposited in the Cayman Islands for local investment or investment abroad. Funds invested outside the Cayman Islands are subject to the tax legislation of the country of investment, usually in the form of withholding tax. However investments can be made on the Euro-dollar market, or in tax free bonds or in investments which have low income but high capital gains. Open ended investment companies (mutual funds) can be conveniently operated using Cayman Islands companies as they may issue shares which are redeemable out of profits or capital (or a combination of both) or may repurchase their own shares.
The Cayman company can own and operate ships registered in the Cayman Islands. The only major requirements are that a survey be conducted by a surveyor licensed by the Department of Industry in the United Kingdom and that the company's principal place of business is within a British Commonwealth country. There is normally no need for the ship to come to the Cayman Islands since the survey prior to registration can usually be conducted in British and Commonwealth ports all over the world. The advantages of the Cayman registration are as follows:
- ships registered in the Cayman Islands are British
- tonnage taxes are moderate; and
- the British flag has always been regarded as one of the
world's most dependable marine registries.
For further information please refer to our Memorandum on Ship Registration in the Cayman Islands.
A company incorporated outside the Cayman Islands and wishing to carry on business in or from the Islands must register with the Registrar of Companies as a foreign company and must maintain a "place of business" and have a resident agent in the Cayman Islands. As in the case of a company incorporated in the Cayman Islands, this firm will be pleased to attend to the registration of the foreign company and provide the place of business and resident agent.
There are currently no Cayman Islands taxes applicable to the income or assets of foreign companies, although it is not possible to obtain a tax undertaking from the Government to this effect.
The documentation required to register a foreign company is as follows:
- a certified copy of the company's Charter and
By-Laws, or equivalent, authenticated under the
Public Seal of the country of incorporation,
together with a certified translation if the document is not
written in English;
- a certified copy of the company's Certificate of
Incorporation, or equivalent document, authenticated and
translated as above;
- a list of the directors of the company certified to be
correct by the secretary of the company before a Notary
- the names and addresses of some one or more persons
resident in the Islands who is authorised to accept service
of process and any notice on behalf of this company. We would
be pleased to provide this service. This appointment is
normally evidenced by a letter of appointment from the
company together with an acceptance from the person
Costs of registering a foreign company are set out in the table below:
Please note that we require advance payment of our incorporation fees and disbursements.
Wayne Panton, Partner
David Whittome, Partner
Heather Bestwick, Partner
British Virgin Islands
Jack Boldarin, Partner
Philip Millward, Partner
Rod Palmer, Partner
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.