On 8 July 2016 the Cayman Islands government brought into force the Limited Liability Companies Law, 2016 (Cayman LLC Law) and confirmed that the Registrar of Companies would be ready to register limited liability companies from 13 July 2016.
The Cayman LLC Law was enacted in June 2016 in response to industry demand generated largely by feedback from the US asset management industry. The law creates a legal framework for the formation of Cayman Islands limited liability companies (Cayman LLCs), which are a type of company with a flexible constitution determined by contract (LLC Agreement), much like a partnership.
Similar in many ways to the Delaware limited liability company, the Cayman LLC is a company with separate legal personality that otherwise resembles a limited partnership in having its members' liability limited by reference to the amounts of capital they have agreed to contribute (or have contributed) rather than by shares or guarantee. A Cayman LLC will thus be free from many of the statutory and common law restrictions that apply to dealings in company shares as well as the strict distinction between company ownership and management, with Cayman LLCs free to leave management in the hands of members or to appoint separate managers (some or all of whom may also be members).
The Cayman LLC is the latest step in the ongoing evolution of Cayman's financial services legislation, which has always been responsive to the needs of the industry. In this case, demand has come particularly from US institutions seeking a Cayman vehicle with the features of Delaware limited liability companies. Cayman LLCs may replace onshore LLCs in some structures where they are commonly used (for example, as general partners of Cayman exempted limited partnerships) and in structures with onshore and offshore components (such as parallel funds) they may replace other types of Cayman entity because they more efficiently mirror the onshore structure.
The greater flexibility of the Cayman LLC compared to standard companies is expected to result in their widespread use in complex structures, such as joint ventures, where a combination of structural rules and lack of contractual privity among members has traditionally required a company's constitutional documents to be supplemented with a separate shareholders' agreement. In a Cayman LLC the flexibility of its LLC Agreement should typically eliminate the need for a separate shareholders' agreement.
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