Cayman Islands: A New Vehicle For The Cayman Trusts Industry: The Foundation Company

Last Updated: 28 February 2017
Article by Morven McMillan, Maxine Bodden, Ray Davern and Alex Way

The Cayman Islands government published the Foundation Companies Bill, 2016 on 16 December 2016 (the "Bill"), which will allow for the formation of a new Cayman Islands vehicle: the foundation company.

A foundation company will be governed by the Companies Law, 2016 (the "Companies Law") save to the extent excluded or modified by Schedule 1 to the Bill, or otherwise inconsistent with the provisions of the Bill.  This means that the foundation company will be familiar to private client and commercial practitioners alike, while key modifications to the Companies Law model company mean that it will be a highly flexible vehicle for achieving a wide range of private client, family office and philanthropic objectives.

Principal Features of a Foundation Company

Formation and Legal Status

The directors and members of an existing company or a company being formed may apply to the Registrar of Companies (the "Registrar") for the entity to be a foundation company.  The Registrar may issue a declaration that an existing entity is a foundation company and, for a company being formed, may endorse such declaration on its certificate of incorporation.  Either way, a foundation company is a body corporate with legal personality distinct from that of its members, directors, officers, supervisors and founder.  Accordingly, it has capacity to sue and be sued and to hold property.

Statutory Requirements

For a company to be a foundation company: 

(a) it must be limited by shares or by guarantee, with or without share capital;

(b) it must have a memorandum that: 

(i) states that the company is a foundation company; 

(ii) generally or specifically describes its objects; 

(iii) provides, directly or by reference to its articles, for the disposal of any surplus assets the company may have on a winding up; and 

(iv) prohibits dividends or other distributions of profits or assets to its members or proposed members as such;

(c) it must have adopted articles; and

(d) its secretary must be a qualified person (see below).

Objects and Powers

A foundation company may be formed for any lawful object which need not be beneficial to other persons.  The optional model memorandum at Schedule 2 describes possible objects of a foundation company: acting as a holding company or an investment company or providing financial assistance or benefits to beneficiaries.  A foundation company will have a duty to carry out its objects only if the memorandum expressly so declares and designates, or provides for the designation of, persons with standing to enforce the duty by action against the foundation company.  

Membership and Limited Liability

A foundation company's constitution (see below) may grant or authorise the grant to any person or description of persons, whether or not ascertained or in existence, the right to become a member of the foundation company and such right is enforceable by action against the foundation company.  A foundation company may cease to have members if its memorandum so permits or requires and it continues to have one or more supervisors (see below).  Ceasing to have members will not affect the foundation company's existence, capacity or powers.  If a foundation company has ceased to have members, it may not subsequently admit members, or issue shares, unless expressly authorised to do so by its constitution.  The model memorandum stipulates (and thus confirms) that the liability of members is limited.

Constitution

This consists of a memorandum and articles; bylaws, if adopted, do not form part of the foundation company's constitution.  The power to make or consent to alterations to a foundation company's memorandum may be given to any person or description of persons, whether or not members or supervisors, exercisable by such process as may be required by the constitution or, if no process is specified, by special resolution.

Capital Structure

A foundation company must be limited by shares or by guarantee with or without share capital.  

Governance

A foundation company's constitution may, as well as providing for its management by directors or their delegates, give rights, powers and duties of any type to members, directors, officers, supervisors, founders or others.  Powers given by the constitution may be given for the benefit of the foundation company, for the benefit of the donee, or for any other purpose, and may be subject to any condition.  Except as otherwise expressly provided by the constitution:

(a) duties are owed only to the foundation company; 

(b) rights are enforceable against the foundation company only; 

(c) a beneficiary as such has no powers or rights relating to the foundation company, its management or its assets and is not, as beneficiary, an "interested person" which class is limited to members, supervisors, persons declared under the constitution to be interested persons and those who have the right to be a member or supervisor; 

(d) the directors shall give an interested person the reports, accounts, information and explanations concerning the foundation company's business and affairs; and

(e) an interested person may bring an action in the name of or on behalf of the foundation company for the enforcement of the duties or liabilities of directors in the same circumstances and manner as may a member of a company that is not a foundation company.

Secretary

A foundation company must have at all times a qualified person as its secretary.  A qualified person is a person who is licensed or permitted by the Companies Management Law (2003 Revision) to provide company management services in the Cayman Islands to the foundation company.

Contribution of Assets

A foundation company shall not accept an asset contribution that is gratuitous or is in consideration of a share issue unless its secretary has given the foundation company a notice that there appears to be no objection under regulatory laws to its acceptance.  The secretary is under an obligation, subject to criminal sanction, to maintain a full and proper record of the secretary's activities and enquiries made for giving notices in relation to the acceptance of assets.  

Supervisor

A foundation company may have supervisors, which are persons, other than members, who under the foundation company's constitution have a right to attend and vote at general meetings, whether or not the person has supervisory powers or duties.  

Register of Supervisors

In addition to the register of directors, members and charges that Cayman Islands companies are required to keep, a foundation company must keep at its registered office an up to date register of supervisors.  Failure to do so is subject to criminal sanction on the foundation company and every director or manager of the foundation company who knowingly and wilfully authorised or permitted the contravention.

Dispute Resolution

A foundation company's constitution may provide for the resolution of disputes among its directors, officers, interested persons or beneficiaries (to the extent that beneficiaries have any rights) concerning the foundation company or its operations or affairs, or the duties, powers, or rights of persons under the constitution by arbitration or by any other lawful method.

Cayman Islands Tax Status

There are no forms of relevant direct taxation in the Cayman Islands and, if the objects of a proposed foundation company are to be carried out mainly outside the Cayman Islands, application may be made to register the proposed foundation company as an exempt company.  Such registration will make the foundation company eligible for a tax exemption undertaking.

The Role of the Grand Court

A foundation company that has a duty to carry out its objects has a right to apply to the Grand Court (the "Court") for an opinion, advice or directions.  Further, section 48 of the Trusts Law (2011 Revision) (the "Trusts Law"), allowing for trustees and personal representatives to apply for the opinion or direction of the Court, will apply to foundation companies with appropriate modifications.  

Firewall

The principle enshrined in sections 92 and 93 of the Trusts Law, the 'foreign elements' provisions of the Cayman Islands Trusts Law, known also as its 'firewall' provisions, will apply to property contributed to foundation companies.

Implementation

The Bill may become law during the first half of 2017, although it will not enter into force until a separate commencement order is published. We will provide further updates as the Bill moves through the legislative process, and once the commencement date for the new law is confirmed.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Morven McMillan
Similar Articles
Relevancy Powered by MondaqAI
Conyers Dill & Pearman
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Conyers Dill & Pearman
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions