Cayman Islands: A New Foundations Law For The Cayman Islands

Already well known for its innovative approach to wealth planning, the Cayman Islands ("Cayman") has taken another welcome step to expand its structuring options by introducing foundations into its comprehensive suite of succession and transaction planning vehicles. The Foundation Companies Bill, 2016 (referred to below as "the Law") was passed by the Legislative Assembly on Monday, 27 March 2017, and is expected to come into force within the next few weeks. A foundation company may be established as a new form of Cayman company and will share many of its features with regular exempted Cayman companies, save that it will be prohibited from paying dividends to its members. It is anticipated that it will fit seamlessly into Cayman's legal regime, and offer up an attractive and flexible structuring tool for private clients with offshore interests, regardless of whether they are located in civil law countries or common law jurisdictions. It is also expected to be useful to commercial lawyers in securitization transactions, as an alternative to the traditional special purpose vehicle under a purpose trust.

Upon commencement, the Law will allow for the creation of a new form of company, incorporated in the same way as a standard Cayman exempted company, which will be known as a "foundation company" (referred to below simply as a "Cayman Foundation"). Importantly, the Law is not a new stand-alone statute: effectively, it operates as an addition to the Companies Law (2016 Revision), which will apply to all Cayman Foundations with necessary modifications. This means that the structure of a Cayman Foundation will be a familiar one, and all jurisprudence on Cayman companies will, to the extent it is relevant, apply to a Cayman Foundation.

Creation of a Cayman Foundation

The Law is prescriptive as to the incorporation, administration and management of a Cayman Foundation. In establishing one, the drafter may choose to either convert a current Cayman exempted company to a Cayman Foundation, or to create an entirely new Cayman Foundation from scratch. In all cases, it will be a body corporate with separate legal personality and will have the capacity to sue and be sued and to hold property.

Pursuant to the Law, a Cayman Foundation:

  • May be formed by any person (the "founder") for any lawful object, which need not be beneficial to other persons. This could include acting as a holding company or an investment company or providing financial assistance to beneficiaries of the Cayman Foundation (if any).
  • Must be limited by shares or by guarantee, but may be established with or without share capital. Despite there being no minimum capital requirements, a Cayman Foundation may have assets added to it at any time.
  • Is incorporated with one or more members, whose liability is limited. Subject to any restrictions specified at the time of incorporation, any person can be a member of a Cayman Foundation. Importantly, once formed, a Cayman Foundation can cease to have members at any time, and the cessation will not affect the Cayman Foundation's existence, capacity or powers, provided that it continues to have one or more "supervisors". A supervisor is definedby the Law as a person, other than a member, who, under the Foundation Company's "constitution", referred to below, has a right to attend and vote at general meetings.
  • Must have a memorandum that states that the company is a Foundation Company, describes its objects, provides for the disposal of any surplus assets the company may have on winding up, and – most importantly – prohibits dividends or other distributions of profits or assets to its members or proposed members.
  • Must also adopt articles of association. The memorandum and articles of association (together, "the Constitution") can be based on the "Model Constitution" contained in Schedule 2 to the Law and adopted by a Cayman Foundation in whole or in part. Amendments can only be made to the Constitution if expressly provided for in the Constitution itself.
  • Must, at all times, have a secretary who is "a Qualified Person", being someone who is licensed or permitted by Cayman's Companies Management Law (2003 Revision) (as amended) to provide company management services in the Cayman Islands. The secretary's office will be the registered office of the Cayman Foundation, where the statutory records regarding the Cayman Foundation must be kept. Failure to keep such records is subject to criminal sanction on the Foundation Company and every director or manager who knowingly and wilfully authorised or permitted the contravention.
  • Is managed by a board of directors. Any individual of full capacity may be a director of a Cayman Foundation; there are no residency requirements for directors or any other restrictions as to who may act as a director. The standard of care applicable to directors of a Cayman Foundation is the same as the directors of any other company, and directors will owe the same duties to a Cayman Foundation as the directors of any other Cayman company owe to that company.
  • May have one or more beneficiaries who may benefit from the Cayman Foundation carrying out its objects – but may also have no beneficiaries at all. Importantly, a beneficiary of a Cayman Foundation has no statutory powers or rights relating to the Cayman Foundation, its management, or its assets, and is not otherwise an "interested person". Despite this, beneficiaries can be designated a role to play by the Constitution, and have specific duties, powers and rights vested in them by the Constitution.
  • Is subject to the same requirements regarding documentation and filings as any other Cayman exempted company, and, in particular, must maintain certain registers and information at the Registrar of Companies, including a minute book and records for anti-money laundering purposes. In terms of the flow of information about a Cayman Foundation, directors are required to give reports, accounts, information and explanations concerning the Foundation Company's business and affairs, and the discharge of their duties or exercise of their powers, in response to any written request from an interested person.
  • May be managed through financial difficulties or insolvency in the same way as any other company established pursuant to the Companies Law, and the provisions for winding up a company apply to Cayman Foundations with consequential amendments. Importantly, if a Cayman Foundation encounters financial difficulties, is insolvent or is of doubtful solvency, the directors must consider the creditors' interests as part of their duty to act in the interests of the foundation itself.
  • Once incorporated, cannot be revoked. However, if a founder is so empowered pursuant to the Constitution, he or she can be given powers with a similar effect to revocation (for example, a power to appoint foundation property to himself or herself).
  • Is subject to Sections 92 and 93 of the Trusts Law (2011 Revision) ("Trusts Law"), which operate to deny heirship rights to the property of a living person and will apply to property contributed to the Cayman Foundation.

Dispute Resolution

The Law prescribes a number of avenues for the resolution of different categories of disputes arising in relation to a Foundation Company. In terms of alternative dispute resolution, the Law states that the Constitution may provide for the resolution of disputes concerning the Cayman Foundation or its operations or affairs, with or among its directors, interested persons or beneficiaries (to the extent beneficiaries are given any rights under the Constitution) by arbitration or by any other lawful method. However, the Grand Court of the Cayman Islands ("Grand Court") also has a very important role to play in resolving any constitutional difficulties encountered by a Cayman Foundation. In particular:

  • If the objects of a Cayman Foundation become wholly or partly "impossible, impracticable, unlawful or obsolete" and there is no power under the Constitution to resolve this difficulty, then the secretary or any interested person including a liquidator of the Cayman Foundation may apply to the Grand Court for assistance to resolve the difficulty.
  • If a Cayman Foundation ceases to have directors or supervisors, or sufficient of them to supervise the management of the Cayman Foundation in accordance with the Constitution, the Grand Court can also act on the application of one of the parties listed above. The Grand Court can appoint or remove directors or supervisors, alter the Constitution with regard to such appointment or removal, alter the powers, duties and other terms of their appointment and make orders for the winding up of a Cayman Foundation in the usual way.

Helpfully, the Law also includes provisions for a Cayman Foundation to apply to the Grand Court for an opinion or advice or for directions if it considers it necessary to do so, in which case Section 48 of the Trusts Law will apply with all necessary modifications.

Foundations in the future

The new Law reflects a careful fusion of the traditional characteristics of a common law foundation with functions of a modern and innovative company, and is designed to offer a flexible and user-friendly vehicle for those with Cayman interests. As a Cayman Foundation may not have shareholders and may also be free of beneficiaries, it can truly achieve "orphan" status and will likely have a number of uses, including as special purpose vehicles in finance transactions, to hold shares in a private trust company, as protectors or enforcers for other trusts or fiduciary structures, and as vehicles for philanthropic objects.

The end product is one that puts Cayman ahead of other offshore financial centres in terms of its structuring options, and it is anticipated that it will attract more business to the jurisdiction, encourage greater locally-conducted business activity associated with the "qualified person" requirement and contribute to government revenue. A further benefit is that its status as a Cayman company, means that there will be no need for the industry and its advisers to grapple with complex and bespoke foundations legislation. The Grand Court will already be well-versed in determining how to treat such a structure in accordance with company law authority, and clients from both civil law and common law jurisdictions will already understand the structure and legal standing of companies. There is, then, no "hard sell" for service providers in the Cayman – offering a Cayman Foundation to new or existing clients will be an easy pitch to make, and enrich the jurisdiction's well-regarded collection of modern and flexible structuring vehicles.

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
 
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”

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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.