Originally published in Ardel Newsletter, November 2011

It was 14 years ago that Guernsey led the way in pioneering the Protected Cell Company (PCC), says Ian Rouget, Associate Director at Ardel.

Initially, the PCC was created for use within the Captive Insurance sector – a field in which the island excels, being the favoured European jurisdiction and number four in the world. A Guernsey Protected Cell Company ("PCC") is a single legal entity. It is one company with one board of directors, one share capital and one memorandum and articles of incorporation.

A PCC comprises a "core" and any number of cells. Those cells can be created simply by a resolution of the board of directors of the PCC. The PCC was used to encourage the captive market by creating a framework where individual organisations could share a captive structure as a far more cost effective solution than creating individual captives.

The PCC and the more recent Incorporated Cell Company (ICC) continues to be widely used as a vehicle within the Captive Insurance market but these structures are now widely used by financial service providers across a broad spectrum of structures and products.

Guernsey introduced ICC legislation in 2006. The key difference between the two vehicles is that Incorporated Cells (ICs) are separate legal entities in their own right, which can make transacting with third parties (or with each other) more straightforward. The choice of the better option between the ICC and PCC will wholly rely on individual situations and objectives.

Whilst a large number of other jurisdictions have since followed in Guernsey's footsteps by developing their own cell company legislation, the island has developed unequalled expertise and experience in this field since the first one was established back in 1997.

Within the fiduciary environment the uses of cell companies are wide. An area where Ardel foresees potential growth is that of image rights. The Guernsey authorities – again showing their pioneering tendencies - have now agreed to develop legislation to establish the world's first image rights registry.

Holding image rights within Guernsey incorporated entities will offer a range of advantages if appropriately structured including the provision of a convenient focal point for contractual reference.

The cell company can offer a cost-effective planning solution within the image rights arena – particularly for less well-known but aspiring 'celebrities' whose image values are still relatively low. For a sporting team, for example, a cell vehicle would be ideal with each member holding shares in a separate cell but with the intellectual property and image rights of the entire team managed within the same structure. Equally, because of the flexible nature of Guernsey's ICC legislation, at a later point in time an individual cell can leave the umbrella structure and convert into an ordinary company – meaning that if one player's image value grows at a much faster rate than others and it becomes financially viable to go it alone, he has the option of doing so without beginning the incorporation process from scratch.

The cell company also offers interesting tax planning opportunities and estate planning benefits. For example, non-domiciliaries in the UK, holding UK property through a Guernsey Cell Company can change its situs for Inheritance Tax purposes; Capital Gains can be deferred while assets are managed at cellular level; different assets and beneficial interests can be apportioned between cells to help separate inheritance entitlements.

Equally for small and medium size businesses the concept of 'rent-a-cell' first used within the captive insurance domain can bring real cost advantages. The cell framework enables a company to share the costs of one central administrative 'hub' by becoming part of an umbrella structure providing real economies of scale.

The cell company legislative framework in Guernsey enjoys an enviable reputation within the global financial world. This versatile tool has developed significantly since its creation in 1997 and continues to be widely used within the fiduciary sector independently or as part of a more complex wealth planning structure. An example of Guernsey's innovative thinking at its best!

For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

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.