We are pleased to report that the Limited Liability Companies Law, 2016 (Law) came into force on 8 July 2016, making the Cayman Islands limited liability company (LLC) available for the first time in the jurisdiction. We expect the regulations under the Law to be gazetted in mid-July.

The introduction of the LLC responds to requests made by the US financial services industry for such a vehicle. As a result, the Law reflects many key features of Delaware's Limited Liability Company Act and those familiar with that Act will recognise features with certain modifications to conform with Cayman Islands law and concepts.

What is an LLC?

Essentially, the LLC is a hybrid entity, merging certain characteristics of a Cayman Islands exempted company with those of a Cayman Islands exempted limited partnership.

Within the parameters of the Law and other Cayman Islands laws applicable to LLCs, members of an LLC are free to agree on regulations governing management of the LLC, contributions by members and distributions and conduct between themselves pursuant to an LLC agreement. Express provisions of the Law create priority in respect of security interests granted by members in respect of their LLC interests. Members owe no duty (fiduciary or otherwise) to the LLC or its members (except if a member also acts as a manager of the LLC, in which case the Law imposes a duty of good faith in exercising the rights and authorities and obligations of a manager, subject to any higher duty that may be imposed under the LLC agreement).

KEY FEATURES OF AN LLC

Uses of an LLC

The LLC provides a significant alternative structuring option to complement the existing choice of vehicles in the Cayman Islands. We believe our clients will embrace the LLC as the suitable form of business vehicle in certain circumstances; it can be useful in a variety of areas including the structuring of investment funds (especially where the structure already includes one or more limited liability companies registered elsewhere), general corporate transactions requiring joint venture or special purpose vehicles and venture capital, private wealth and private equity structures.

It should be noted that the Law automatically incorporates the LLC into certain existing legislation to allow for its use as a mutual fund, general partner of an exempted limited partnership and as an investment manager or advisor.

Appleby is already advising on continuations of foreign entities into the Cayman Islands as LLCs and the content of proposed LLC agreements.

The Law is the natural outcome of the Cayman Islands paying attention and responding to the input and needs of global industry and its participants and further consolidates the Cayman Islands' position as a leading offshore jurisdiction.

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.