Bermuda's new Limited Liability Company Act 2016 provides
for the formation and operation of limited liability companies
(LLCs), entities that will be familiar to those with experience of
Delaware LLCs. The central provisions of the act were closely
modelled on the corresponding provisions of the Delaware LLC
legislation, so that Bermuda LLCs look, feel and operate much like
Delaware LLCs. Bermuda LLCs, like their Delaware counterparts, are
extremely flexible and simple to operate.
A Bermuda LLC is a separate legal entity, and its members have
limited liability, much like a corporation. In common with a
partnership, however, the affairs of a Bermuda LLC are governed by
an agreement rather than by statutorily mandated constitutional
documents. This affords great flexibility as the act, like the
Delaware legislation, expressly provides that maximum effect is to
be given to the principle of freedom of contract in relation to LLC
This ability to tailor the constitution and the corresponding
simplified corporate governance of Bermuda LLCs make them ideal for
a wide range of activities ranging from asset holding companies to
joint ventures to complex financing structures.
Ownership vs management
Bermuda LLCs are not required to have a separation of ownership
and management and can be managed by their members, obviating the
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 desire. Similarly, the activities of a Bermuda LLC can
be as broad (in the case of an active business) or restricted (in
the case of a special purpose vehicle) as desired, and third-party
protections (e.g. to give comfort to lenders) can be drafted into
the LLC agreement.
The LLC agreement can also provide great flexibility in
regulating the relationship between the members and managers. The
agreement can grant voting rights to all or some, or to any
specified class or group of, members or managers on any desired
basis. Members may be admitted and receive an LLC interest (i.e. a
share of the Bermuda LLCs profits and losses and a right to receive
distributions) without any obligation to contribute to the LLC, or
may be admitted without receiving an LLC interest. LLC interests
may be assigned in whole or in part and members may grant security
over their LLC interests.
There is also great scope to customise the duties of members and
managers to the Bermuda LLC and to each other. Any such duties that
would otherwise exist at law or in equity (including fiduciary
duties) may be expanded, restricted or even eliminated by the LLC
agreement – except that fraud and dishonesty cannot be
permitted. The act also expressly permits members and managers to
vote in their own self-interest.
It is possible to provide for specified penalties or
consequences against any non-performing member, including the
subordination, reduction, forced sale or forfeiture of the
defaulting member's LLC interest, which the act expressly
states are enforceable.
Furthermore, any security interest granted over the assets of a
Bermuda LLC can be registered in Bermuda, and the registration will
ensure priority under Bermuda law over any unregistered and any
subsequently registered security interests. This provides important
certainty to lenders.
Moves, mergers and amalgamations
In relation to fundamental changes, Bermuda LLCs are again
extremely flexible. They are able to merge or amalgamate with other
Bermuda LLCs or foreign entities; discontinue from Bermuda and
continue in another jurisdiction; and convert to Bermuda limited
partnerships with separate legal personality or 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 LLCs.
Finally, the procedure for winding up and dissolving Bermuda
LLCs follows closely the well understood corresponding regime for
Bermuda corporations. This provides a sophisticated structure and
certainty when dealing with the liquidation of complex
The Bermuda LLC is a flexible commercial vehicle designed to
enable parties to more easily reflect their commercial agreement in
the entity's constitution. This is achieved by providing
primacy to the principle of freedom of contract. And with its roots
in existing Bermuda and Delaware legislation, the act comes with
This article was originally published in The Lawyer,
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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