Cayman Islands: Exempted Companies - June 2017

Introduction

An exempted company (a "Company") is the most commonly used type of Cayman Islands company for international transactions. This note describes certain features of a Company. It is intended to be a summary only, and is not exhaustive. It is not a substitute for detailed legal advice, which can be obtained from your usual Walkers contact or any of the Walkers partners listed at the end of this note.

Legislation

A Company is subject to the Companies Law (2016 Revision) of the Cayman Islands (the "Law").

Constitution

The constitution of a Company consists of a memorandum of association (the "Memorandum") and (almost invariably) articles of association (the "Articles").

Pursuant to the Law, any one or more persons associated for any lawful purpose may, by subscribing their names to the Memorandum, and otherwise complying with the Law in respect of registration, form an incorporated company.

Any proposed company applying for registration under the Law, the objects of which are to be carried out mainly outside the Cayman Islands, may apply to be registered as a Company.

The most common form of Company is a company limited by shares, with a share capital divided into shares having a par value.

It is permissible, though unusual, for a Company to issue shares which have no par value. In such a case the entire consideration paid for the shares is treated as share capital. This has certain disadvantages, including that dividends may not be paid out of share capital.

Legal form

A Company has separate legal personality.

From the date of incorporation, the subscribers of the Memorandum, together with such other persons as may, from time to time, become members of the Company (also referred to in this note as shareholders), shall be a body corporate with the name contained in the Memorandum, capable forthwith of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit, and having perpetual succession.

Nature of business permitted

The objects of a Company will be set forth in the Memorandum. In a majority of cases, the objects clause will be worded very broadly using a formulation such as, "the objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by any law".

A Company may not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.

A Company that is not listed on the Cayman Islands Stock Exchange is prohibited from making any invitation to the public in the Cayman Islands to subscribe for any of its securities.

Certain activities are regulated in the Cayman Islands and a Company may be required to obtain a licence or to register with the Cayman Islands Monetary Authority if it wishes to carry on such activities. These include banking business, trust business, company management, insurance business, mutual fund administration, business of a mutual fund and securities investment business.

Registration requirements

Upon the filing with the Registrar of Companies (the "Registrar") of:

  1. the Memorandum and Articles (if any);
  2. the appropriate filings fees; and
  3. a declaration from the subscriber to the effect that the operation of the Company will be conducted mainly outside the Cayman Islands,

a Company shall be deemed to be registered, and the Registrar shall issue a Certificate of Incorporation.

The Certificate of Incorporation will generally be issued within five working days, or within two working days upon payment of an express government fee.

Name

It is not necessary for a Company's name to contain words or abbreviations such as 'Limited', 'Ltd', 'Inc', 'Corp' etc. There are certain restricted names, for example, those including the words 'royal', 'imperial', 'bank', 'assurance', 'insurance'.

Registered office

A Company must have a registered office situated in the Cayman Islands to which all notices and communications may be addressed.

Restrictions on number of members

A Company must have a minimum of one shareholder at any time. Unless provided for in the Articles, there is no maximum number of shareholders.

A Company must have at least one share in issue, but there is no minimum paid-in capital requirement. Fractional shares may be issued if the Articles so permit.

Residency requirements

There are no residency or qualification requirements for directors or shareholders of a Company. Corporate directors are permitted.

A Company is not required to hold board meetings or shareholder meetings in the Cayman Islands or anywhere else unless so required by its Articles.

A company secretary is not required.

Changes to registered details

Certain changes to the registered details in respect of the Company must be notified to the Registrar. The nature of the relevant change affects the filing requirements and the time limits for making the relevant filing.

Amendments of the Memorandum or Articles, or the name of the Company, may only be made by special resolution of the voting shareholders. The change is effective upon passing of the special resolution, but must be filed with the Registrar within fifteen days. The Registrar nonetheless may reject a change of name and direct that a new name be chosen.

A Company may increase, consolidate or sub-divide its share capital. Increases of authorised share capital may only be made by ordinary resolution of the voting shareholders. The change is effective upon passing of the ordinary resolution, but must be filed with the Registrar within 30 days.

A Company may reduce its authorised (but unissued) share capital if authorised by its Articles by special resolution of the voting shareholders. A Company may only reduce its issued share capital if authorised by its Articles, with the approval of a special resolution of its voting shareholders and with the confirmation of the Court. It may however be able to redeem or repurchase shares in certain circumstances, even where this leads to an effective reduction in the issued share capital.

Changes to the identity, names and addresses of the directors and officers of the Company must be filed with the Registrar within 60 days.

Amendment of constitution

Amendments of the Memorandum or Articles, or the name of the Company, may only be made by special resolution of the voting shareholders.

A resolution is a special resolution when:

  1. it has been passed by a majority of not less than two-thirds (or such greater number as may be specified in the Articles) of such members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given; or
  2. if so authorised by the Articles, it has been approved in writing by all of the members entitled to vote at a general meeting of the Company.

Powers and liabilities of directors

The Articles will invariably provide that the business of the Company shall be managed by the directors. Shareholders do not generally participate in the management of the Company's business.

Directors owe fiduciary duties to the Company. These duties include a duty:

  1. of loyalty/duty to act in best interests of the Company;
  2. to act for a proper purpose;
  3. not to fetter director's discretion;
  4. to avoid conflicts;
  5. not to make secret profits from the director's position as director;
  6. to act fairly as between different shareholders; and
  7. to act with skill and care.

These duties are owed to the Company itself, and not generally to individual shareholders. In the event of a breach of duty, the directors may be personally liable to account to the Company.

Books and records

A Company shall cause to be kept a register of its members containing the names and addresses of the members of the Company, the shares held by each member, the amount paid, or agreed to be considered as paid, on the shares of each member, the date on which the name of any person was entered on the register as a member, and the date on which any person ceased to be a member.

The register of members is not open to public inspection. Cayman corporate services providers must, however, collect beneficial ownership information on all companies, and such information is available to certain domestic and international governmental authorities. The register of members need not be kept in the Cayman Islands.

The register of members shall be prima facie evidence of any matters by the Law directed or authorised to be inserted therein.

A Company is required to keep at its registered office a register of all mortgages and charges specifically affecting property of the Company, and to enter in such register in respect of each mortgage or charge a short description of the property mortgaged or charged, the amount of charge created and the names of the mortgagees or persons entitled to such charge. It is an offence for the Company not to make such an entry, but failure so to do does not invalidate the mortgage or charge. The register of mortgages shall be open to inspection by any creditor or member of the Company at all reasonable times.

A Company is also required to keep at its registered office a register containing the names and addresses of its directors and officers, and shall send to the Registrar a copy of such register. The register of directors and officers is not open to public inspection.

A Company shall cause to be kept proper books of account, giving a true and fair view of the state of the Company's affairs and to explain its transactions, with respect to:

  1. all sums of money received and expended by the Company and the matters in respect of which the receipt and expenditure takes place;
  2. all sales and purchases of goods by the Company; and
  3. the assets and liabilities of the Company.

A Company shall cause all books of account to be retained for a minimum period of five years from the date they were prepared, and any company that knowingly and wilfully fails to do so will be subject to a penalty.

There are no generally accepted accounting principles in the Cayman Islands and therefore it is open to a Company to select whichever accounting conventions it chooses.

A Company shall cause minutes of all resolutions and proceedings of its members and of its directors to be duly kept in writing.

The only publicly available information in respect of a Company is its name, company number, date of incorporation, registered office, the type of company (eg exempted) and whether the Company is active or has been struck off. The memorandum and articles of association are not publicly available.

Liability of shareholders

No contribution shall be required from any member exceeding the amount, if any, unpaid on the shares in respect of which he is liable.

As most Companies issue shares that are fully paid upon issue, the effect of this provision is that no further sums are payable by the holders of such shares once they have paid for their shares in full.

There are certain rare cases where a court will permit the limited liability status of a Company to be pierced, such as where no corporate governance formalities have been observed and a shareholder has treated the Company as its alter ego for the purpose of evading a personal liability.

Transfer of interests

The transferability of shares will be set forth in the Articles. Commonly, shares may only be transferred with the prior consent of the directors of the Company.

A company is permitted to hold shares in treasury.

There is no Cayman Islands stamp duty payable on the transfer of shares.

Distributions

A Company may make distributions by way of dividend provided that there are no restrictions (either express or implied) in its Memorandum or Articles. A Company may only make distributions by way of dividend out of profits or (provided that immediately following the date that the dividend is proposed to be paid the Company is able to pay its debts as they fall due in the ordinary course of business) out of its share premium account.

Dissolution

A Company may be wound up voluntarily:

  1. when the period, if any, fixed for the duration of the Company by the Articles expires;
  2. whenever the event, if any, occurs, upon the occurrence of which it is provided by its Memorandum and Articles that the Company is to be dissolved;
  3. the Company has, by special resolution of its members, adopted a special resolution requiring the Company to be wound up voluntarily; or
  4. the Company has, by ordinary resolution of its members, adopted an ordinary resolution requiring the Company to be wound up voluntarily on the basis that the Company is unable to pay its debts as they fall due.

The winding up of a Company will occur automatically, however, to the extent that the necessary procedures have not been followed, the passing of the fixed duration or the occurrence of a certain event is grounds for a petition to the court by a creditor or member on the basis that the Company did not wind itself up as required.

Upon the commencement of the winding up a liquidator is appointed (although it should be noted that the appointment of a voluntary liquidator shall only take effect upon the filing of his consent to act with the Registrar of Companies). There are no restrictions on who may act as liquidator on a solvent winding up, but the need to comply with certain duties and procedures under Cayman Islands law means that generally a professional in the Cayman Islands is appointed. However, where the court appoints the liquidator, the liquidator is required to be a qualified insolvency practitioner under the Insolvency Practitioners Regulations 2008 (as amended). The liquidator steps into the shoes of the directors and is responsible for gathering in the assets of the Company, satisfying its liabilities and then distributing the remaining amounts to the shareholders in accordance with the Articles. Within 28 days of the commencement of a voluntary winding up, the liquidator, or in the absence of a liquidator, the directors shall make certain statutory filings with the Registrar of Companies including a notice of winding up, the liquidators consent to act and (where the supervision of the court is not being sought) a declaration of solvency (signed by all the directors). In the case of a company carrying on a regulated business (ie a mutual fund) notice of the winding up must be served on the Cayman Islands Monetary Authority. The notice of the winding up is required to be published in the Cayman Islands in the Gazette. Any liquidator or director who fails to comply with such filing requirements is liable to a fine of $10,000.

It should be noted that the directors' declaration of solvency is required to be in a prescribed form and state that a full enquiry has been made into the company's affairs and that to the best of the directors' knowledge and belief, the Company will be able to pay its debts in full together with interest at the prescribed rate within a period not exceeding twelve months from the commencement of the winding up. Directors should bear in mind the forward looking nature of this test as the future solvency of the Company (including all actual and contingent liabilities) must also be considered. All directors are required to sign the solvency statement and must have reasonable grounds for the statements made. To the extent that a statement is made without reasonable grounds, each director is liable to a fine of $10,000 or imprisonment for two years, or both.

Once the above process is complete, a final shareholders' meeting is held and the liquidator's accounts are approved. The liquidators make their final return to the registrar of Companies informing the Registrar of Companies that the liquidation has been completed. Three months after the liquidators have submitted their final return, the Company is deemed to be dissolved and, from that point on, ceases to exist.

Alternatively, where the Registrar has reasonable cause to believe that a Company is not carrying on business or is not in operation (including upon the submission of a director of the Company), he may strike the Company off the register and the Company shall thereupon be dissolved. If a Company or any member or creditor thereof feels aggrieved by the Company having been struck off the register in accordance with the Law, the Court on the application of such Company, member or creditor made within two years or such longer period not exceeding ten years as the Governor may allow of the date on which the Company was so struck off, may, if satisfied that the Company was, at the time of the striking off thereof, carrying on business or in operation, or otherwise, that it is just that the Company be restored to the register, order the name of the Company to be restored to the register. Any property vested in or belonging to any Company struck off the register under the Law shall thereupon vest in the Financial Secretary and shall be subject to disposition by the Governor, or to retention for the benefit of the Cayman Islands.

Winding up is therefore a more final form of terminating a Company than striking it off.

Tax status and annual return

A Company may apply for an undertaking from the Financial Secretary to the effect that, for a period of twenty years from the date of such undertaking (extendable by a further ten years):

  1. no law which is thereafter enacted in the Cayman Islands imposing any tax to be levied on the profits, income, gains or appreciations shall apply to the Company or its operations; and
  2. no such tax nor any tax in the nature of estate duty or inheritance tax will be payable by the Company:

    1. on or in respect of the shares, debentures or other obligations of the Company; or
    2. by way of the withholding in whole or in part of any relevant payment.

An annual fee payable on or before 31 January of between US$854 and US$3,132 (depending on the Company's authorised share capital) is payable to the Registrar. An annual return must also be filed on or before 31 January in every year. Penalties will be levied for late filings.

For a Company that is not regulated or licensed under any other law, no financial statements need to be filed with any Cayman Islands governmental agency, and no annual audit is required.

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.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

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.