Cayman Islands: Domiciling Investment Funds In The British Virgin Islands And Cayman Islands

Last Updated: 1 December 2008
Article by Duncan Smith

The "sub-prime" crisis and the volatility of international markets in 2008 has reinforced the utility of "open-ended" funds as a refuge for investors with a clear increase in the number of 'special opportunities' and 'distressed opportunities' funds being launched. Open-ended funds such as 'hedge funds' enable the collective pool of funds to be diversely invested in multiple markets, thus spreading the total risk amongst the investment pool. Open-ended funds give investors the right to demand a redemption of their interest in a fund (i.e. an investor's shares), thereby appealing to investors who require liquidity in an investment. This compares with "closed-ended" funds such as private equity funds which are usually established for a fixed period (i.e. 5-10 years) and investors cannot demand a redemption of their interest in the fund until divestment (i.e. when the fund's assets are sold before getting a return on their investment).

For investment managers and legal advisers, the most important decision will be choosing whether to domicile the fund onshore or in an offshore jurisdiction. By power of numbers, the choice of domicile for most investment professionals will be the British Virgin Islands ("BVI") or the Cayman Islands. According to the Cayman Islands Monetary Authority ("CIMA") there were 10,037 active regulated funds in the Cayman Islands as at June 2008. The BVI also affirms its place as an alternate second choice of domicile with 3,338 active fund vehicles being regulated by the Financial Services Commission ("FSC") for the period ending March 2007.

This article outlines the similarities that the BVI and the Cayman Islands share as offshore jurisdictions for domiciling open-ended funds, and discusses the various categories of funds that can be established according to the legislation of those jurisdictions.

General Benefits

The advantages in choosing the BVI and the Cayman Islands as an offshore jurisdiction for domiciling a fund include:

  • Nil imposition of direct taxes.
  • No foreign currency exchange restrictions.
  • No restrictions on investment strategies and objectives that are commonly imposed by onshore regulators in the name of consumer protection.
  • Ease and speed of fund registration.
  • Both jurisdictions are British Overseas Territories, with the Privy Council in London as the final court of appeal, with companies laws based upon internationally familiar English company law principles.
  • Appropriate levels of regulation by governments that recognise the importance of working closely with the private sector to provide legislation which meets market needs.
  • Proximity and closeness of time zones with markets in North America and Latin America.
  • The BVI and the Cayman Islands are each a 'recognised jurisdiction' for the purposes of the Financial Action Task Force, with know-your-client standards equivalent to many onshore jurisdictions.

Basic legal form of the fund

A fund domiciled in the BVI or the Cayman Islands can either be formed as a company with limited liability, a limited partnership or a unit trust, offering, respectively, shares, limited partnership interests or units of beneficial interest to investors. The majority of funds are established using a company structure, which will entail the fund issuing to investors, multiple classes or series of redeemable shares without voting rights (except the right to vote in matters affecting the rights of such shares). The memorandum and articles of association may also be drafted to provide the directors of the fund with the power to make any such required amendments to the memorandum and articles of association (except those affecting class rights) without the need to seek the consent of the members of the fund.

There is no minimum authorised or issued company share capital requirements imposed in either jurisdiction, and the share capital of the fund may be denominated in any one or more currencies. Shares may be issued at no par value, or at a low par value (i.e. $0.01). The shares will then be issued for subscription at a high premium (i.e. excess of issue price over par value) to provide maximum flexibility for redemption. Monies paid in as share premium are available for distribution by way of dividend or to satisfy any premium on redemption. In addition, subject to a solvency requirement, shares may be redeemed from capital.

Regulatory Framework


The choice of the BVI as a domicile for a fund means that it will be regulated under the Mutual Funds Act, 1996 (the "BVI Act") and by the FSC. A mutual fund is defined under the BVI Act as a company, a partnership a unit trust or other similar body which:

  1. collects and pools investor money for the purpose of collective investment; and
  2. issues shares, interests or units which entitle the holder to receive on demand or within a specified period after demand an amount computed by reference to the value of a proportionate interest in the whole or part of the net assets of the fund.

Closed-ended funds and funds set up for investment by (i) one or more members of the same family or (ii) a single investor are exempt from the requirements of the BVI Act.

The BVI Act provides for three categories of funds:

  • Professional Funds - are the most popular category of fund registered in the BVI, followed in second place by private funds (discussed below). By definition a professional fund is a fund whose shares are only made available to professional investors. A "professional investor" is a person whose ordinary business involves, whether for his or her own account or the accounts of others, the acquisition or disposal of property of the same kind as the property, or a substantial part of the property of the fund, or a person who has signed a declaration that he or she, whether individually or jointly with their spouse, has a net worth in excess of US$1,000,000 or its equivalent in any other currency and that they consent to being treated as a professional investor.

A professional fund has a minimum investment requirement in that the initial investment of the majority of the investors must not be less than US$100,000 or its equivalent in any other currency. A professional fund is required to apply to the FSC for recognition as a professional fund and is permitted to operate for 14 days before receiving its grant of recognition from the FSC, which is an advantage where the timing of the fund launch is particularly tight. A professional fund is not required to file an offering memorandum under the BVI Act, however it should be noted that the prescribed FSC application for recognition requires that a copy of the offering memorandum be provided to the FSC.

  • Private Funds - A private fund is essentially a fund whose constitutional documents specify that it will have no more than fifty (50) investors and/or that the making of an invitation to investors to subscribe for shares in the fund is to be made on a private basis. Unlike a professional fund, there is no minimum investment or investor suitability requirement for a private fund. A private fund is required to apply to the FSC for recognition as a private fund, and it is an accepted practice to file an offering memorandum with the FSC, although it is not an express requirement under the BVI Act.

The guidelines to the BVI Act suggest that the making of invitations to as many as 300 persons might be considered as an offering on a private basis if it can be demonstrated that the offeror made the invitations to specified persons and that they had no deliberate intention of making invitations to other persons. However, the making of invitations to a significantly greater number of more than 300 persons would cast doubt upon compliance with the spirit of 'private basis' which is embodied in the BVI Act on the grounds that such a large number of persons is not consistent with what is commonly understood to be 'private'.

  • Public Funds - A public fund is a category of fund which is not a private or professional fund and is required to be registered and be granted a license by the FSC as opposed to private and professional funds which only need to be "recognised" by the FSC. The regulatory requirements and licensing procedures for public funds are tighter than those required for private or professional funds, as public funds are usually only used where the shares or interests are intended to be offered to retail investors. A public fund is required to file with the FSC a copy of its offering memorandum, which must follow the requirements as set out in the BVI Act and its regulations. A public fund is also required to file audited accounts with the FSC which is not a requirement for professional and private funds.

Filing requirements for recognition of private/professional mutual funds.

The following documents are required to be filed with the FSC in order to be recognised as a private or professional fund:

  • A certified copy of the fund's certificate of incorporation, and memorandum and articles of association.
  • A copy of the fund's offering memorandum.
  • For professional funds - a copy of the subscription agreement together with a professional investor declaration.
  • Completion of the prescribed application form for recognition.
  • A notice containing details of the fund's places of business and address for service in the BVI, and the fund's registered agent in the BVI.
  • Payment of the prescribed application fee (discussed below).

Once the FSC is satisfied that the requirements of the BVI Act have been met, a Certificate of Recognition as a fund will be issued.

Ongoing FSC requirements

The FSC maintains a register of funds which must contain up-to-date address details of the fund. A change in such details must be filed with the FSC within 21 days. If a fund wishes to change a manager, administrator, investment advisor or custodian, it must first obtain the prior written consent of the FSC.

The fund will be required to pay a registration fee of US$350 to the FSC if the fund is registered prior to June 30, and a fee of US$175 if the fund is registered after 1 July. Thereafter the annual fee is US$350.

Cayman Islands

Funds in the Cayman Islands are required pursuant to the Mutual Funds Law (Revised) of the Cayman Islands (the "Cayman Law") to be licensed or registered as a mutual fund with CIMA before they commence carrying on business unless they are exempt from such requirements.

A "mutual fund" is defined as any company, trust or partnership either incorporated or established in the Cayman Islands, or if outside the Cayman Islands, managed or administered from the Cayman Islands, which issues equity interests redeemable at the option of the investors, the purpose or effect of which is the pooling of investors' funds with the aim of spreading investment risk and enabling investors to receive profits or gains from investments (i.e. an open-ended fund).

A fund will be exempt from the requirements to be registered if the equity interests are held by not more than 15 investors, the majority of whom are capable of appointing or removing the operator. For this purpose, there is no examination of the beneficial owners, as the term 'investor' is defined as the investor of record. If, therefore, all the equity interests are issued to a single institutional nominee or custodian, the fund will fall outside the scope of the Cayman Law. Closed-ended funds and those funds which only issue debt instruments are outside the scope of the Cayman Law.

Unless exempt, a Cayman Islands fund must comply with one of the following three alternatives prescribed by the Cayman Law:

  • The Section 4(3) Mutual Fund - this category is appropriate if the minimum aggregate equity interest which may be purchased by a prospective investor is at least US$100,000 (or its equivalent in another currency), or if the equity interests are listed on a recognised stock exchange. This category of fund is popular with investment managers of hedge funds. The filing requirements below focus on this fund category.
  • The Licensed Mutual Fund - this option is generally suited for funds accepting initial investor subscriptions below the US$100,000 minimum threshold (i.e. retail funds) and requires an application to CIMA for a Mutual Fund License, and a registered office for the fund in the Cayman Islands to be established.
  • The Administered Mutual Fund - is appropriate where the fund designates its principal office at the office of a mutual fund administrator licensed in the Cayman Islands. This category is also suited for retail funds accepting initial investor subscriptions below the US$100,000 minimum threshold.

Filing requirements for registration of a Section 4(3) mutual fund

The following documents are required to be filed with CIMA in order to register a Section 4(3) mutual fund and be issued a Certificate of Registration:

  • a registry certified copy of the fund's Certification of Incorporation;
  • a completed Form MF1 application;
  • a current offering memorandum describing the equity interests in all material respects and containing such other information as is necessary to enable a prospective investor to make an informed decision as to whether or not to subscribe for or purchase the equity interests;
  • consent letters from the fund's administrator and auditor; and
  • payment of a registration fee of US$3,050.

A fund may begin to market its offering to investors upon filing the required documents with CIMA, but may not receive subscription monies until such time that the fund has received its Certificate of Registration from CIMA.

Ongoing CIMA requirements

Once a Section 4(3) mutual fund has been registered with CIMA, its obligations under the Cayman Law are to:

  • file with CIMA within 21 days, a copy of any amendments to its current offering document, and any changes to the fund's registered or principal office;
  • have its accounts audited annually by an auditor approved by CIMA and to file those accounts with CIMA within 6 months of the end of the fund's financial year; and
  • pay the prescribed annual license fee (currently US$3,050) on or before 15 January in each year.

Selection of Jurisdiction - BVI or Cayman Islands?

BVI advantages

  • Cheaper regulatory and annual fees (US$350 - compared with US$3,050 in the Cayman Islands).
  • No requirement for an auditor to be appointed.
  • Professional funds may operate for 14 days before receiving its grant of recognition from the FSC.
  • The FSC is an ordinary member of the International Organization of Securities Commissions (IOSCO) in recognition of the BVI's "robust international cooperation framework and its long-standing commitment to comply fully with international standards".

Cayman Islands advantages

  • Strong market recognition as a leading domicile for offshore funds.
  • Ability for a fund to market its offering to investors (but not accept subscription monies) upon filing the relevant documents with CIMA.
  • Exemption from the registration requirements of the Cayman Law if the fund has less than 16 investors.
  • The Cayman Islands operates its own stock exchange
  • The Cayman Islands has a sovereign credit rating from Moody's.

Quick Reference Table


British Virgin Islands

Cayman Islands

1. Regulator

Financial Services Commission ("FSC")

Cayman Islands Monetary Authority ("CIMA")

2. Permitted fund vehicles

Companies, segregated portfolio companies, unit trusts and limited partnerships

Companies, segregated portfolio companies, unit trusts and limited partnerships

3. Fund regulatory requirements

Public funds must be licensed with the FSC.

Private/professional funds are required to apply for recognition

Retail funds must be licensed or have a licensed administrator in the Cayman Islands. Non-retail (Section 4(3)) funds need to be registered with CIMA

4. Offering memorandum required?

Public funds – yes.

Private/professional funds – no, but accepted practice to include with application

Offering memorandum must be provided

5. Auditor requirement?

Only required for public funds

Audited financial statements to be filed by CIMA and prepared by a Cayman Islands auditor

6. Annual shareholder meetings?

No requirement

No requirement

7. Investment restrictions?



8. Number of directors required for fund?

Public funds – 2

Private/professional funds - 1

2 for registered funds

9. Manager required?



10. Administrator required?

Yes, but not required to be a local licensed administrator

Yes, but not required to be a local licensed administrator

11. Custodian required?



12. Investment advisor required?



13. Fees payable

Private/professional fund recognition fee – US$350 if registered prior to June 30; or US$175 if fund registered after 1 July. Annual FSC fee – US$350

Section 4(3) mutual fund registration fee – US$3,050. Annual CIMA fee US $3,050 PAYABLE BEFORE 15 January of each year

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”

Related Video
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.


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.