Cayman Islands: Company Formation And Law In The Cayman Islands

Last Updated: 30 March 1999
The Companies Law 1990, which is the main source of law governing companies, was originally enacted in 1961. It is based on English law, although it has evolved to take account of the greater flexibility required by investors in Cayman, whilst maintaining regulations for the protection of shareholders and creditors.

Types Of Companies

There are four types of companies that can be incorporated in Cayman which are: ordinary resident companies; ordinary non-resident companies; exempted companies; and exempted limited duration companies.

An ordinary resident company is used mainly as a vehicle for the conduct of local business. A limited duration company is basically an exempted company with special additional characteristics. For the purposes of this article it should, subject to the special characteristics referred to below, be considered to be an exempted company. Exempted companies, ordinary non-resident companies and limited duration companies are generally established as holding or investment companies for the purposes of carrying on business outside Cayman.

The main differences between an exempted company and an ordinary non-resident company are as follows.

A) An exempted company may issue bearer shares while an ordinary non-resident company may not.

B) An ordinary non-resident company's name must end with the word "limited" (or the abbreviation "ltd") while an exempted company has no such requirement.

C) An exempted company must hold at least one directors' meeting in the Cayman Islands each year (although local alternate directors may be appointed for this purpose). An ordinary non-resident company need not hold such a meeting but it must hold at least one shareholders' meeting in Cayman every year (local proxies can be appointed).

D) It is not necessary for an exempted company to file a return of shareholders with the Registrar of Companies. An ordinary non-resident company must file a return of shareholders each year although it is not unusual to appoint nominee shareholders.

E) An exempted company may obtain a Certificate of Tax Exemption which is not available to an ordinary non-resident company.

In all other significant respects the four types of companies are treated in the same manner and are usually incorporated for an unlimited duration. They constitute separate legal entities from their directors and shareholders and may sue or be sued in their own names.

Exempted Limited Duration Company

A limited duration company is treated in the same manner as an exempted company save that:

A) the Memorandum of Association of the company must limit the duration of the company to a period of 30 years or less;

B) the company may be taken to have automatically commenced voluntary winding-up and dissolution upon the occurrence of various events;

C) it must, at all times, have at least two members;

D) the Articles of Association may provide that no shares or ownership interests in such a company can be transferred without the consent of all shareholders; and

E) the management of the company may be carried out by the shareholders, although it may be delegated to a board of directors.

How To Incorporate A Company

There are many local entities that will assist in the incorporation of Cayman companies and they will usually require the following information:

A) choice of two or three names;

B) names and addresses of proposed shareholders (minimum one), or beneficial owners if shares are to be held by nominees, and the number of shares to be held;

C) names and addresses of directors (minimum one), the secretary and any other officers;

D) authorised share capital and any special rights attaching to shares;

E) banking requirements (if any); and

F) references.

The local agents will usually act as the initial subscribers and directors of the company and deal with routine matters relating to formation. Upon incorporation the original directors will hold a board meeting to deal with the formalities of establishment including issuing shares, approving banking facilities, and appointment of directors and officers.

A company is usually incorporated on the same day that incorporation documentation is filed with the Registrar of Companies which, provided it is a standard form of company, can be the same day as receipt of instructions.

Cost Of Incorporation And Administration

There is now little difference in the cost of incorporating an ordinary non-resident company, an exempted company and a limited duration company. The cost of incorporation will, however, vary depending on the amount of authorised share capital and the local agent carrying out the incorporation.

For a standard company with an authorised share capital of up to US$50,000, the cost can vary from US$1,000 to US$2,500 including government fees and incidental expenses. Annual management fees, apart from the annual government fee of US$500, will depend on the services provided. Generally speaking there is a set fee for the provision of registered office, directors and officers, and alternates and proxies. For additional work, including management of the company's assets, fees may be charged on an hourly basis, a fixed amount or as a percentage of the gross assets of the company.

Management And Directors

The business of a company is managed by the directors (note exempted limited duration companies), other than businesses specifically reserved to the shareholders. It is not necessary for any of the directors or officers of a company to be resident in the Cayman Islands. However, if it is necessary for that company to have a real presence in Cayman there are a number of local agents that specialise in corporate management and the provision of directors. Such management can vary from merely providing a registered office to the provision of a full board of active directors who will manage all aspects of the company's business. The Articles of Association of a company usually provide that the directors can be removed by a resolution of a majority of the directors or shareholders.

Memorandum And Articles Of Association

Every company must have a set of Memorandum and Articles of Association. The Memorandum of Association sets out the objects for which the company is established and are generally unlimited - ie it can do anything which a natural person can do which is not prohibited by law.

The Articles of Association set out the internal regulations of the company. The contents of the Articles of Association are very much a matter for the persons incorporating the company and can be designed to meet the specific requirements of such persons. Both the Memorandum and Articles of Association can be amended by the passing of a special resolution of the shareholders of the company.

Meetings And Resolutions

An ordinary non-resident company must hold at least one shareholders' meeting in the Cayman Islands each year. An exempted company must hold at least one directors' meeting in the Cayman Islands each year. In both cases local agents can hold such meetings as alternates and proxies. Regulations governing the convening and conduct of such meetings are contained in the company's Articles of Association.

Directors resolutions are usually passed by simple majority of the directors present at a meeting or written resolution signed by all the directors of the company. Shareholders' resolutions are either ordinary or special. Most matters will be decided by ordinary resolution, ie passed by the holders of a simple majority of shares entitling the holders thereof to vote, who are present in person or by proxy at a shareholders' meeting.

In the case of a special resolution the majority is at least two-thirds and proper notice must be given proposing a resolution as a special resolution. Special resolutions are usually required when dealing with matters that go to the core of the company, eg amending Memorandum and Articles of Association, reducing share capital, winding up the company. Shareholders' resolutions may also be passed by way of written resolutions, signed by all of the company's shareholders.

Shareholders And Creditor Protection

The directors of a company have certain statutory responsibilities which relate to the administration of the company. The main source of protection for shareholders and creditors is common law; the appointment of an inspector/receiver; putting the company into liquidation; or applying to the Court to have the company compulsorily wound up. These rights are similar to those afforded to shareholders and creditors of UK companies. Legal action may be taken against a director who is in breach of his duties to recover losses incurred by the company, a shareholder or creditor.


Subject to its Memorandum and Articles of Association, a company has the power to borrow or raise money; to mortgage and charge its undertaking, property and uncalled capital; and to issue debentures and other securities whether outright or as security for any obligation of the company or of any third party. If a company creates a charge or other security interest over any of its property, details must be entered in its Register of Mortgages and Charges in order to establish priority and to be effective against other creditors. It is also advisable, particularly in the case of chattel mortgages, to register the same at the Public Records Office in Cayman.


There are very strict confidentiality laws in the Cayman Islands prohibiting the release of information relating to a company and its affairs. An exception to this rule is that the register of members of an ordinary non-resident company is available for inspection by the public. However, as mentioned above, if one does not wish to appear on that register then it is not unusual to appoint nominee shareholders. An exempted company need not keep a register of members and is not therefore open to inspection by the public. The Register of Mortgages and Charges of a company is available for inspection by any creditor or member of the company.

Regulations, Accounting And Filing Requirements

There are no securities or exchange control regulations in the Cayman Islands, and Designated Territory Status under the UK Financial Services Act of 1986 has not been sought. Certain licences and approvals are required only if a company intends to carry on the business of banking, trustees, insurance, corporate management, mutual fund administration and certain forms of mutual funds.

All companies must file the following information with the Registrar of Companies: all the special resolutions of shareholders; any appointments and removals of directors and officers; and any change of registered office or change in share capital. In addition, an ordinary non-resident company must submit an annual return of shareholders at the beginning of each year. An exempted company makes an annual return at the beginning of each year, confirming that the business of the company has been conducted mainly outside of the Cayman Islands and that there have been no changes to its Memorandum and Articles of Association.

Companies Incorporated Outside The Cayman Islands

If a company incorporated outside of the Cayman Islands wishes to establish a place of business or commence carrying on business in Cayman, which includes the sale by or on behalf of the company of its shares or debentures, it must apply for registration with the Registrar of Companies. This is particularly important if a non-Cayman Islands mutual fund wishes to appoint a Cayman Islands Registrar or Administrator. Most Cayman Islands banks also require that a foreign company register before opening a bank account.

In order for a foreign company to apply for registration it must file with the Registrar of Companies a copy of its incorporation documentation in English. Ideally one would also receive a Certificate of Incorporation and Certificate of Good Standing. It is also necessary to provide a list of its directors, containing their names and addresses; places of residence; the names of one or more persons resident in the Cayman Islands who are authorised on behalf of the company to accept service of process and any notices required to be served on it.

A company may also transfer 'by way of continuance' from another jurisdiction to the Cayman Islands. This basically transfers the 'domicile' of the company to the Cayman Islands, without the necessity of first liquidating the foreign company and transferring all the assets and liabilities to a new company. Conversely it is also possible to transfer 'by way of discontinuance' a Cayman Islands company to another jurisdiction in the same manner.

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.

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