Cayman Islands: Cayman Foundations: New Wealth Management Tool

Last Updated: 24 October 2017
Article by John Wolf, Hamid Khanbhai and Mark Adams

A new corporate entity has been introduced to the Cayman Islands in the form of the Foundation Company ("Cayman Foundation"), under the Foundation Companies Law 2017 which is now in force.

Cayman Foundations will no doubt be put to various uses, including in the structured finance industry. They are likely, however, to prove to be a popular means of managing family assets in a tax-efficient manner. This note focuses on the use of the Cayman Foundation as a wealth management vehicle.

A Cayman Foundation is a separate legal entity that holds assets in its own name. In principle, it can operate as an investment vehicle, the fruits of which may be drawn down by beneficiaries designated by the founder or founders, and whose identity may be changed from time to time. It may therefore prove to be a useful vehicle for holding and managing family assets.

One key advantage over a company or trust is that the beneficiaries (including the founder if a named beneficiary) do not have any proprietary or other interest in the assets of the Cayman Foundation. This means that any change of entitlements does not lead to a disposition of assets from the founder to a beneficiary or from one beneficiary to another.

That notwithstanding, founders and/or beneficiaries may be treated as ultimate beneficial owners of the assets, for anti-money laundering purposes or for taxation by revenue authorities in different jurisdictions. Local legal and taxation advice will therefore be important when considering whether or not a Cayman Foundation is appropriate in any given case.

What is a foundation?

Foundations are familiar to certain civil jurisdictions, such as Liechtenstein, Germany and Austria. They may be used for any legal purpose, which does not have to be a charitable one. In practice, most civil law foundations are instruments of estate planning of the founder, for the benefit of the founder's family. A foundation may therefore serve as a functional equivalent to a trust or a will. Some jurisdictions prevent foundations from carrying out commercial activity.

Their success derives in large part from the control that can be reserved to founders, without the founders retaining any proprietary interest in the assets once placed into the foundation.

Civil law foundations typically have the following characteristics:

  • a foundation has separate legal personality, has no members, and operates by reference to its constitutional documents under the stewardship of a board or council;
  • neither the founder or any beneficiary (unlike in the trust context) has any proprietary interest in the assets of the foundation, which are owned by the foundation absolutely once transferred to the foundation;
  • a founder can effectively bind the board or council of the foundation to do his wishes, by way of simple contract. It is possible therefore for the founder to direct how the foundation's capital and income are to be applied, and who is to be a beneficiary, and to change those instructions from time to time;
  • a founder can in principle be sole beneficiary during his lifetime, entitled to draw on both the capital and income of the foundation, with provision for other beneficiaries after the founder's death.

Common law practitioners often puzzle over the concept: foundations are not really companies or trusts, but they have certain characteristics of each. Indeed, a trust under which the settlor is the sole beneficiary entitled to capital and income is not a trust at all; but this is possible in a foundation.

In recognition of the popularity of foundations, some offshore common law jurisdictions have established foundations by statute – Jersey, Guernsey and now the Cayman Islands.

What is a Cayman Foundation?

A Cayman Foundation is in fact defined as a species of company, and the Companies Law applies in modified form as well as the Foundation Companies Law 2017. Unlike foundations in some jurisdictions, a Cayman Foundation can carry out commercial activity, such as investment activity (so long as it is activity outside the Cayman Islands).

In substance, though, a Cayman Foundation is not too dissimilar from civil law foundations or its common law cousins.

A Cayman Foundation is a company with separate legal personality; but it needs no members, and does not have to have any shares in issue. Through careful drafting of the constitution, the founder can exercise very significant control over how the capital and income of the Cayman Foundation are to be used and who may draw on them. The founder can also have the power to alter the Cayman Foundation's constitutional documents, as well as what are known as the 'bylaws' of the foundation.

Amongst other things, it is envisaged that the bylaws will provide greater specificity than the constitution about (i) how the foundation should operate, (ii) who are to be beneficiaries and (iii) the scope of the entitlements of the beneficiaries.


Cayman Foundations are simple to establish. A Cayman Foundation requires a secretary, who must be a qualified person who maintains the books and records of the foundation; and the registered office will be at the secretary's business address in the Cayman Islands. Amongst other things, the secretary is the gatekeeper for contributions to the foundation, for anti-money laundering requirements.

In addition, a Cayman Foundation needs a supervisor and at least one director. The supervisor and director can be the same person.

In reality, therefore, a founder may need only two service providers – a secretary and a supervisor/director.

There is no need to have members of the Cayman Foundation or shares. There is in fact little benefit to having members, since one feature of Cayman Foundations is that payment of dividends or distributions of profits or assets to members is prohibited. Rather, the manner in which assets and income are to be applied or drawn is a matter for the constitution or bylaws.


As with ordinary companies, the constitution of the Cayman Foundation comprises a memorandum and articles of association.

The constitution can give rights, powers, or duties to any person. These might relate to amendment of the bylaws or the constitution. Powers given by the constitution may be exercised for any purpose; they need not be exercised in the interests of the Cayman Foundation itself.

It is possible, therefore, for the documents to be drafted in a way that means that the founder or any other person may have:

  • the right to alter the constitution of the Cayman Foundation or its bylaws;
  • the right to appoint or remove any of the service providers to the Cayman Foundation, including the supervisors; and
  • the power to designate or alter beneficiaries and their entitlements.


Bylaws are not part of the constitution of the Cayman Foundation, but it is contemplated that they will be the blueprint for how the Cayman Foundation is operated and managed, and who may draw on its assets and income.

Although bylaws must not be inconsistent with the constitution, they may relate to all aspects of the management and operation of the Cayman Foundation, from the duties, powers, and remuneration of directors; the benefitting of beneficiaries; the investment, management and protection of the Cayman Foundation's assets; and the appointment of advisers and other service providers.

In the context of family planning, it will be the bylaws that provide that, for example, the founder has an absolute right to draw on the capital and income of the foundation during his lifetime, but other specified persons (or classes of persons) will be entitled to draw on capital and/or income after his death. It should be noted that, as with trusts, foreign heirship rights will not be recognised in relation to foundation assets.

Information rights and enforcement rights

Only "interested persons" have information rights and enforcement rights against the foundation company. Interested persons are (i) members (or those entitled to be members), (ii) supervisors (or those entitled to be supervisors) or (iii) any person so named in the constitution. Beneficiaries are not interested persons.

Insolvency and winding up

Dispositions may not be made by the Cayman Foundation if to do so would mean that the Cayman Foundation is unable to pay its debts as they fall due in the ordinary course of business.

Cayman Foundations are capable of being restructured by way of scheme of arrangement.

In terms of winding up, the constitution must expressly set out how the assets are to be distributed, in the case of any surplus after payment of creditors. Unlike with other companies, after payment of creditors, there is not necessarily any distribution to members of the Cayman Foundation.

Contentious issues

In terms of dispute resolution, the constitution of a Cayman Foundation may provide that disputes be resolved by arbitration or any other lawful method. This means that disputes can be resolved in procedures that are confidential, such as arbitration, without the need to resort to public hearings in Court.

Since Cayman Foundations are a newly established type of corporate entity, areas that are likely to give rise to dispute cannot be identified with confidence. One area of uncertainty, though, relates to the duties owed by directors of Cayman Foundations.

Under the statute, directors may commit an offence and incur civil liability if they knowingly and wilfully authorise a disposition of assets when the Cayman Foundation is insolvent. There are also other specifically defined offences and liabilities that directors may incur, for example in relation to the need to maintain registers, and provision of information to the secretary relevant to anti-money laundering.

More generally, though, it is unclear from the statute how the common law duties of directors of companies are to apply in practice in the case of Cayman Foundations, given that:

  • a founder can retain significant control over the operation, management and assets of a Cayman Foundation without necessarily being a director, officer, member, supervisor, or beneficiary;
  • no member (if there are any members at all) will have an economic interest, in his character as member, in a solvent Cayman Foundation; and
  • beneficiaries have no powers or rights relating to the Cayman Foundation, its management or its assets and are not interested persons.


The introduction of foundation companies is a welcome addition to Cayman Islands law. With careful drafting of the constitution, Cayman Foundations are likely to be adaptable to many different uses, including as a wealth management tool.

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

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

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
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (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

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’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.


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.


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 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.


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.


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.


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.


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 .


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

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

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

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