ARTICLE
29 November 2024

Cayman Islands Exempted Companies

C
Conyers

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Conyers is a leading international law firm with a broad client base including FTSE 100 and Fortune 500 companies, international finance houses and asset managers. The firm advises on Bermuda, British Virgin Islands and Cayman Islands laws, from offices in those jurisdictions and in the key financial centres of Hong Kong, London and Singapore. We also provide a wide range of corporate, trust, compliance, governance and accounting and management services.
This publication has been prepared for the assistance of those who are considering the formation of companies in the Cayman Islands ("Cayman").
Cayman Islands Corporate/Commercial Law

Preface

This publication has been prepared for the assistance of those who are considering the formation of companies in the Cayman Islands ("Cayman"). It deals in broad terms with the requirements of Cayman law for the establishment and operation of such entities. It is not intended to be exhaustive but merely to provide brief details and information which we hope will be of use to our clients. We recommend that our clients and prospective clients seek legal advice in Cayman on their specific proposals before taking steps to implement them.

Before proceeding with the incorporation of a company in Cayman, persons are advised to consult their tax, legal and other professional advisers in their respective jurisdictions.

Persons considering establishing companies to carry on regulated activities such as insurance or fund business should request separate publications prepared by this Firm on these topics.

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1. INTRODUCTION

The principal statute governing the formation and operation of Cayman companies is the Companies Act.

The Companies Act distinguishes between local companies, which are required to be predominantly owned by Cayman residents, and exempted companies, which are not. Generally, only local companies can carry on and compete for business within Cayman. Exempted companies, while resident in Cayman, are not permitted to carry on a trade or business in Cayman, except in furtherance of their business activities outside Cayman, unless they hold a licence to carry on business in Cayman under applicable laws. This publication is concerned only with the formation and operation of exempted companies carrying on business from, yet external to, Cayman.

2. PRE-INCORPORATION MATTERS

2.1 Company Name

On payment of a small fee, the proposed name of the company can be reserved with the Registrar for a limited time. No company may be incorporated with a name that is the same as, or substantially similar to, the name of another company on the register. The use of certain words in company names such as "royal", "chartered" and "bank" is restricted.

An exempted company may be incorporated with a dual name in a foreign script. There is no requirement that the dual name be a translation of the company's English name.

2.2 Contracts

Where a person purports to enter into a contract in the name of, or on behalf of, a company which has not yet been incorporated, they will be personally liable under the contract unless the agreement itself provides otherwise. After incorporation, the company may ratify the contract and by doing so will become bound by and entitled to the benefit thereof. Such ratification by the company will have the effect of releasing the person who purported to act on the company's behalf from personal liability.

2.3 Types of Exempted Companies

The Companies Act provides for various types of exempted companies, each having slightly different constitutional characteristics.

Exempted Companies - Exempted companies are not entitled to trade in Cayman with any person except in furtherance of business "carried on outside" Cayman. A proposed exempted company applying for registration must submit a declaration to that effect. An exempted company is not prohibited from effecting or concluding contracts in Cayman or exercising any of its powers in Cayman for the carrying on of the company's business outside Cayman. It is, however, prohibited from making any invitation to the public in Cayman to subscribe for any of its shares or debentures.

Exempted Limited Duration Companies - Exempted limited duration companies are limited by their memorandum of association to a life span of 30 years or less. At the end of its specified life span, the company will normally be voluntarily wound up and dissolved. A limited duration company must have at least two subscribers or two members. The name of a limited duration company must end with the words "LDC" or "Limited Duration Company".

Segregated Portfolio Companies - Only an exempted company can seek registration as a segregated portfolio company. The segregated portfolio corporate structure allows a company to separate the assets and liabilities held within one portfolio from those held within another and/or from the general assets of the company not attributable to any particular portfolio. To register as a segregated portfolio company one must apply to the Registrar and pay an additional application fee. The applicant must also furnish a notice containing the names of each segregated portfolio to be created. There is an additional annual fee payable for each segregated portfolio.

2.4 Other Types of Companies

As mentioned above, the Companies Act provides for the existence of local companies, which are permitted to conduct business in Cayman. In addition, the Companies Act provides for "ordinary nonresident companies". Such companies are similar to exempted companies in that they are incorporated in, but must conduct their business external to, Cayman unless appropriate licensing is obtained to conduct business in Cayman.

It is possible to re-register an existing ordinary non-resident company as an exempted company (but not vice-versa). Certain actions such as registration as a segregated portfolio company or de-registration by way of continuation to another jurisdiction will require the ordinary non-resident company to re-register as an exempted company.

3. REQUIREMENTS OF CAYMAN LAW

3.1 Memorandum of Association

The memorandum of association and the articles of association form the constitution of a Cayman company. In addition to the name of the proposed company, the memorandum of association must contain the following information:

  • the names of the initial subscribers to the memorandum, which may or may not be represented by a nominee, and the number of shares for which each has subscribed (minimum of one subscriber and one share);
  • the objects of the company, which are generally unrestricted;
  • the location of the company's registered office;
  • a declaration confirming that the liability of the company's members is limited; and
  • the company's authorised share capital divided into shares of a certain fixed amount, which may be denominated in any one or more currencies.

Whilst it is permissible to register a company with capital divided into shares without nominal or par value (which instead just show the aggregate consideration) it is not possible for an exempted company to divide its capital into bother shares of a fixed amount and shares without nominal or par value.

The issue of bearer shares is prohibited.

3.2 Articles of Association

The articles of association provide for the internal regulation of a company's affairs and are generally filed along with the memorandum of association. The articles of association generally provide for:

  • the issue, transfer and repurchase or redemption of shares;
  • voting rights;
  • members' meetings;
  • the appointment of directors and officers and their meetings, powers and indemnification;
  • financial year end;
  • the payment of dividends; and
  • the winding-up of the company.

If the articles of association are filed at the same time as the memorandum of association, they must be signed by each subscriber to the memorandum of association and witnessed.

A copy of the memorandum of association and the articles of association must be made available to every member of the company on request.

3.3 Ultra Vires

No act of a company may be invalidated by reason only that the company was without the capacity or power to perform the act; that is, the ultra vires rule does not apply. The facility for internal actions against the company and/or its directors is however retained. Members, directors or the company itself are still entitled to take action when the company purports to act beyond the limits of its constitution.

3.4 Registered Office

Every company must have a registered office in Cayman, its location to be recorded by the Registrar and published by public notice. The directors of the company may, by resolution, change the location of the registered office. Within 30 days of the resolution being passed, the company must deliver to the Registrar a certified copy of the resolution.

3.5 Directors

There must be at least one director of a Cayman company. There is no requirement that any of the directors be ordinarily resident in Cayman. The initial director(s) are appointed by the subscriber(s) to the memorandum of association. Thereafter, the addition and/or removal of directors will normally be effected in accordance with the provisions of the articles of association.

The liability of the directors may, if so provided by the memorandum of association, be unlimited.

The names and addresses of the directors and officers must be entered on a register of directors and officers and kept at the registered office. A copy of the register must be sent to the Registrar within 60 days of the first appointment of any director or officer of the company. Notice of any change in directors or officers must be filed with the Registrar within 30 days of any such change taking place.

A company in default of complying with the above requirements shall incur a penalty of CI$500/US$610. In addition, if the Registrar is satisfied that a breach has been knowingly and wilfully authorized or permitted, a company shall incur a CI$1,000/US$1,220 penalty and every director and officer shall incur a penalty of CI$1,000/US$1,220 as well as a further penalty of CI$100/US$122 for every day during which the default continues.

The Registrar will maintain a list of the names of current directors and alternate directors and will make the list available for inspection by any person upon payment of a fee of CI$50/US$61.

3.6 Officers

The appointment of officers is optional. A company secretary is ordinarily appointed but this is not a legal requirement.

3.7 Bankers

A company may open and maintain bank accounts in or out of Cayman. Additional legislation and regulations aimed at detecting and preventing money laundering will generally apply to movements of funds through any banking facility maintained in Cayman. This is a highly technical area of law and further legal advice should be sought if required.

3.8 Books of Account

Whilst there are no detailed requirements as regards accounting records, a Cayman company must keep proper records of account with respect to revenue flows, expenditure and its assets and liabilities. The records need not be kept in Cayman, but if not kept in Cayman will need to be made available at the registered office annually and if an order or notice for production under the Tax Information Authority Act ("TIAA") is made.

3.9 Auditors

Unless the company is subject to certain registration or licensing legislation as a result of its proposed activities, there is no requirement that it appoint auditors or file financial statements with the Registrar or any other governmental authority.

3.10 Seal

The seal of the company may be affixed to documents and duplicate seals may be created for use in another jurisdiction, if required. However, the Companies Act does not require that a physical seal be affixed to documents which are executed under seal.

3.11 Financial Year End

A Cayman company may specify a date for its financial year end.

3.12 Register of Members

The register of members may, but need not be, kept at the registered office, and it need not be available for inspection by the public or any governmental authority in Cayman. Branch registers may be kept in any country or territory. If the register is not kept at the registered office in Cayman, it will need to be made available there if an order for production under the TIAA is made.

The register of members must include the names and addresses of the members and a statement of the shares held by each member, including the share number, amount paid or agreed to be considered as paid, number and category of shares and whether each relevant category of shares holds voting rights (including the right to vote at general meetings and/or the right to appoint or remove directors) and, if so, whether such voting rights are conditional. The date on which a person's name was entered on the register and the date on which any person ceased to be a member must also be included.

A company in default of complying with the requirement to maintain a register of members or the requirement to make changes to the branch register shall incur a penalty of CI$5,000/US$6,098. Any director or manager of the company who knowingly and wilfully authorises or permits such default shall also incur a CI$5,000/US$6,098 penalty. A failure to comply with an order or notice of the Tax Information Authority ("TIA") without reasonable excuse will result in a penalty of CI$500/US$610 and a further penalty of CI$100/US$122 for every day during which the non-compliance continues.

3.13 Beneficial Ownership Register

Unless an alternative route to compliance is available by, for example, being listed or licensed under a Cayman regulatory law, each company's corporate service provider ("CSP") has an obligation to establish and maintain a register of its beneficial owners to be kept at its registered office. Each company is required to take reasonable steps to identify any registrable beneficial owners which include individual beneficial owners of the company and all Cayman incorporated, formed or registered legal entities that would be beneficial owners if they were individuals ("reportable legal entities").

Beneficial owner details are uploaded to the General Registry via its Corporate Administration Platform ("CAP") system. The information is encrypted upon submission and further encrypted upon receipt. The data is then deleted from CAP and goes to a non-internet facing, offline server only accessible by a Government authorised competent authority.

There are significant financial penalties for failure to establish or maintain a beneficial ownership register. Administrative fines apply to 'in-scope' entities that fail to take reasonable steps to identify beneficial owners and reportable legal entities, fail to ensure their beneficial ownership register remains up to date and/or fail to provide particulars of registrable beneficial owners to their CSPs or certain notices to their registrable beneficial owners. Entities that rely upon an alternative route to compliance are not required to maintain a beneficial ownership register but may still be in breach if they fail to provide written confirmation of their alternative route to compliance and instructions to file the information required to satisfy the alternative route to compliance, or if they incorrectly seek to rely upon an alternative route to compliance that is not available to the entity. Of particular note, Cayman Islands companies whose beneficial ownership register indicates a status of 'Enquiries pending' for three uninterrupted months will be presumed to be in breach and liable to administrative fines. There are a number of other technical breaches for which companies and/ or their CSPs may be fined. The Registrar may strike a company from the register if a fine remains unpaid for ninety days.

3.14 Registered Particulars

The Registrar keeps a register of required particulars in respect of each company which includes, amongst other things, the company name, registered office, share capital, subscribers to the memorandum, date of the financial year end and the nature of the company's business. The Registrar will make this register available for inspection by any person upon payment of a fee of CI$50/US$61.

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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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