Companies incorporated in the Cayman Islands have long been a popular choice as listing vehicles on most of the world's major stock exchanges, including the Taipei Exchange (TPEx) and the Taiwan Stock Exchange (TWSE).
Ever since Maples and Calder, the Maples Group's law firm, acted as the Cayman counsel on the pioneering listing of the first Cayman Islands company on the Taiwan Stock Exchange in 2010, more than 100 Cayman Islands companies have followed suit and listed or registered on the TWSE and TPEx.
Deals involving Taiwan's technology and other start-up ventures have long used Cayman Islands companies within their deal structures to take advantage of the myriad benefits associated with the jurisdiction. This trend has intensified and Cayman Islands incorporated vehicles have increasingly been the jurisdiction of choice for start-up companies and venture capital investments.
Taiwan's top 10 most promising new technology start-ups, including Appier, CoolBitX, iStaging Corp, UMBO CV and Gogoro – a Taiwan-based electric scooter company, which is said to be Taiwan's next technology unicorn – are all incorporated in the Cayman Islands.
Why are Cayman Islands companies so attractive to Taiwanese start-ups, particularly those with an eye on being listed on stock exchanges in Taiwan or elsewhere?
Here are a few reasons:
- There is no minimum paid up capital requirements, other than an entirely nominal amount;
- The share capital of the company may be denominated into any currency, including New Taiwan dollars;
- Shares can be given a very small par value (e.g. US/NT$0.001 per share), and shares can be issued at any price that is not less than par, the result being that the subscription price for shares can be very cheap. This makes it easy to incentivize employees via flexible employee stock option plans, which provide for shares to be issued to employees upon vesting at a low exercise price;
- Shares can be issued for cash or non-cash consideration. They may be issued in exchange for the shareholder contributing technology, know-how or services, with the only requirement being that the directors believe that the value of such consideration is sufficient to pay the price of the shares, and that this is in the best interests of the company;
- A Cayman Islands company can be incorporated quickly and inexpensively, within one day. The continuing obligations following incorporation are not onerous, for example: only one director is required who does not need to be a resident in the Cayman Islands; it is not necessary to hold annual general meetings of shareholders; and it is not necessary for the company's accounts to be audited or filed with any authorities in the Cayman Islands;
- Well-recognized legal concepts (including limited liability and separate corporate personality) underpin Cayman Islands companies, and decades of experience and extensive due diligence have demonstrated to investors that these foundations are solid and reliable;
- Cayman Islands law provides a framework that can be adapted to give effect to investors' requirements, such as bespoke share transfer restrictions (including pre-emption, drag-along and tag-along rights), corporate governance arrangements to protect investor rights (including deadlock resolution and reservation of particular matters for shareholder approval) and tailor-made exit plans (including rights of redemption or repurchase). This enables the constitution of start-up companies to be tailored to reflect the commercial intentions of the parties;
- The flexible nature of Cayman Islands corporate law allows funds to be returned easily to investors, for example, simple dividend rules allow dividends to be distributed out of profits or share premium, subject only to solvency. Similarly, funds can be returned to investors via share redemptions and repurchases, which can be hard-wired into the company's constitution;
- Exiting upon listing is possible in most of the world's major stock exchanges. The listing and ongoing requirements of any listing rules across the globe can easily be met within the legislative framework of the Cayman Islands;
- Cayman Islands is a tax-neutral domicile. There are no additional layers of tax or withholding tax in the jurisdiction; and
- No government or regulatory approvals are required in the Cayman Islands in order for a Cayman Islands company to be used as a listing vehicle or as a special purpose vehicle (SPV) in Taiwan or elsewhere. Even if a Cayman company is listed (in Taiwan or elsewhere), Cayman does not impose a double layer of regulation.
The Cayman Islands was an early adopter of both the Foreign Account Tax Compliance Act and Common Reporting Standards, and continues to demonstrate commitment towards increased transparency in the financial services industry by implementing laws to ensure that the jurisdiction remains at the forefront of compliance with global standards.
The Cayman Island's commitment to implement a global standard to adhere to today's legal and global regulatory demands, coupled with its strong track record in Asia, means that market participants in Taiwan will continue to look to the Cayman Islands as a jurisdiction of choice for structures across a range of sectors, in particular early stage and venture capital start-up companies.
Previously published in Asia Business Law Journal on 7 January 2020.
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