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.
Conyers
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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