We are delighted to report that the Limited Liability Companies
Law, 2016 ("LLC Law") has commenced today, 8 July 2016,
whereby a Cayman Islands Limited Liability Company
("LLC") will be available for the first time from
Wednesday, 13 July 2016.
As noted in our prior client advisory, an LLC
will be very similar to a Delaware limited liability company. An
LLC will be flexible as it permits the parties to agree the terms
applicable to it in the LLC Agreement. This added flexibility
delivers greater choices in the structuring of any international
transaction. The introduction of the LLC will complement the
existing stable of legal vehicles available in the Cayman Islands
for international transactions, including exempted companies,
exempted limited partnerships and trusts.
Based on consultation with the US financial services industry
and other market participants, the expected uses of an LLC are wide
ranging and dependent on tax and regulatory considerations. They
include using an LLC as (i) holding companies or SPVs, (ii) joint
ventures (on the basis that the terms of the joint venture can be
contained in the LLC Agreement); (iii) the general partner or carry
vehicle for private equity funds; (iv) corporate private equity
fund vehicles; (v) offshore feeders in a master-feeder structure
for hedge funds; and (vi) risk retention vehicles for CLOs.
The LLC Law is largely based on the current Delaware Limited
Liability Companies law, with certain changes for Cayman Islands
law and concepts. The key features of a Cayman Islands LLC are:
It will be a body corporate with
separate legal personality, having at least one member.
The liability of a member to make
contributions to the LLC will be limited to such amounts as agreed
in the LLC Agreement.
Registration of the LLC will be
effected by the filing of a registration statement with the
Registrar of Limited Liability Companies in the Cayman Islands (the
"Registrar"). The LLC Agreement is not required to be
filed with the Registrar.
Members are free to agree among
themselves the internal workings of the LLC in the LLC Agreement.
This includes agreeing mechanisms such as capital accounting and
capital commitments, allocations of profits and losses, allocations
of distributions, voting rights (including negative consents) and
classes of interests.
The management of the LLC shall
either vest in its members acting by a majority in number or, if
the LLC Agreement provides, by one or more managers. A manager of
an LLC is akin to a director of a Cayman Islands company.
Subject to the provisions of
the LLC Agreement, a manager of a LLC shall not owe any duty
(fiduciary or otherwise) to the LLC or any member or any other
person except a duty to act in good faith, and such duty of good
faith may be expanded or restricted by the express provisions of
the LLC Agreement.
An LLC shall not make a distribution
or release a member from any obligation to the LLC to the extent
that the LLC is insolvent at such time. A member who receives a
distribution or is purportedly released and who had actual
knowledge the LLC was insolvent at the time of the distribution or
purported release, shall be liable for the amount of the
distribution or for performance of the obligation purportedly
An LLC shall maintain a register of
its members, a register of its managers, a register of mortgages
and charges and a register of security interests of LLC interests.
The register of managers will need to be filed with the Registrar
of Limited Liability Companies (similar to how a Cayman Islands
company must file its register of directors with the Registrar of
An existing exempted company can
convert into an LLC but not vice versa at this stage. Exempted
limited partnerships and segregated portfolio companies will not be
able to convert into LLCs at this stage.
An LLC may merge or consolidate with
exempted companies or any foreign entity with separate legal
Transfer by way of continuation into
the Cayman Islands and transfer by way of continuation out of the
Cayman Islands are also permitted for LLCs.
Walkers is a member of the legislative drafting subcommittee for
the LLC Law and has been working extensively with the Cayman
Islands government and government authorities (including the
Registrar of Companies and the Cayman Islands Monetary Authority)
on the commencement and implementation of the LLC Law. We are
delighted to be part of such an innovative initiative and would be
pleased to discuss any queries that you may have regarding a Cayman
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.
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