Bermuda's recently enacted Limited Liability Company
Act, 2016 (the "Bermuda LLC Act") comes into force
on 1 October 2016. The legislation provides for the formation and
operation of limited liability companies ("Bermuda LLCs")
which will be familiar to those with experience of Delaware
The Bermuda LLC Act provides for a new form of entity which can
be used for any lawful business or activity, including trading,
asset holding, financing and investment.
What is a Bermuda LLC?
A Bermuda LLC is a hybrid entity combining characteristics of a
limited partnership and a company limited by shares (referred to
here as a corporation). The LLC concept was first developed in the
United States, where it has become one of the most common forms of
business entity, due to its flexibility and ease of operation. The
central provisions of the Bermuda LLC Act were closely modeled on
the corresponding provisions of the Delaware LLC legislation, so
that Bermuda LLCs will look, feel and operate much like Delaware
Like a corporation, a Bermuda LLC is a separate legal entity,
and its members have limited liability; however, like a
partnership, the affairs of a Bermuda LLC are governed by an
agreement, rather than by statutorily mandated constitutional
documents. This provides great flexibility, as the Bermuda LLC Act,
like its Delaware counterpart, expressly provides that it is to be
construed to give maximum effect to the principle of freedom of
contract in relation to LLC agreements – allowing the LLC
agreement to fully reflect the parties' intentions and
eliminate many of the formal constraints applicable to
Advantages of Bermuda LLCs
Unlike corporations and limited partnerships, Bermuda LLCs are
not required to have a separation of ownership and management and
can be managed by their members, so there is no need for a board of
directors or a general partner. Alternatively one or more
non-member managers can be appointed if that is what the parties
The LLC agreement can provide great flexibility in providing how
the relationship between the members will be structured, including
rules for voting and governance and the basis for distributions and
for allocating profits and losses. Similar flexibility exists in
relation to the members' or managers' duties to the Bermuda
LLC or to each other, as any such duties that would otherwise exist
at law or in equity may be expanded, restricted or even eliminated
by the LLC agreement (except that fraud and dishonesty cannot be
permitted). Bermuda LLCs also have a broad power to indemnify
members and managers (except in respect of their fraud or
dishonesty). The Bermuda LLC Act expressly permits members and
managers to vote in their own self-interest.
Any security interest on the assets of a Bermuda LLC can be
registered in Bermuda, and such registration will ensure priority
under Bermuda law over any unregistered and any subsequently
registered security interests. This provides important certainty to
Bermuda LLCs are able to: (i) merge or amalgamate with other
Bermuda LLCs; (ii) merge or amalgamate with foreign entities; (iii)
discontinue from Bermuda and continue in another jurisdiction; (iv)
convert to Bermuda limited partnerships with separate legal
personality and (v) convert to Bermuda corporations. In addition,
such limited partnerships and corporations can convert to Bermuda
LLCs, and foreign LLCs can move to Bermuda by continuing as Bermuda
The Bermuda LLC is a flexible commercial vehicle designed to
enable parties to more easily reflect their commercial agreement in
the entity's constitution. It is also intended to allow for
simpler and more efficient operation. All of this is achieved by
providing primacy to the principle of freedom of contract. Drawing
closely on the corresponding legislation in Delaware, the Bermuda
LLC Act provides such an entity in a form that will already be
familiar to many. Although Bermuda's legislation is new, it
comes with the provenance of a tried and tested model, a great
example of practical innovation.
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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