Posts Tagged ‘Delaware LLC’

The Pros and Cons of a Cayman LLC

July 8th, 2016 By Virtual Paralegal Services

Note: This is the last in the series about Cayman LLCs.

Like Delaware LLCs, a Cayman LLC is a corporate body with a legal status that is separate from its members. Unlike the Cayman Islands exempted limited partnership, the Cayman LLC structure offers members some protection from personal liability.

The members of the LLC have substantial authority to set the internal rules and structure of the business. Cayman LLCs can be managed by one member, a group of members, all the members together, or by a non-member designated to act on behalf of the business. Managers are restricted by the Duty of Care, but are otherwise free to pursue the goals of the LLC in the ways they see fit. Cayman Islands law does not even require these businesses to file their LLC agreements with the Registrar of Companies.

Members of a Cayman LLC have greater flexibility to handle the profits or losses of the business. The absence of shares or share capital funds means members can distribute the proceeds of the business based on internal contractual arrangements. This makes managing a Cayman LLC a much simpler task than overseeing a Cayman exempted company.

In short, Cayman LLCs approach the flexibility of a Cayman exempted limited partnership, while maintaining the liability shield and legal status of a Cayman exempted company.

The drawbacks of the Cayman LLC

There are few drawbacks to the Cayman LLC that are not also true of other offshore arrangements. For people who have never before participated in offshore business ventures, the fees and reporting requirements of the Internal Revenue Service may come as a surprise. For clients who already use Cayman partnerships or exempted companies, there should be no surprises in forming an LLC.

Unlike Delaware LLCs, there is no similar provision in the Bill to create Series LLCs. The Cayman Islands already has a legal entity known as a Segregated Portfolio Company that serves a similar business purpose to the Series LLC. It is unclear if the Cayman LLC will eventually copy the Delaware LLC in incorporating a series arrangement.

If you need additional assistance when it comes to Cayman LLCs, please contact us. We can help.

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Working Together: Cayman LLC and Delaware LLC

July 1st, 2016 By Virtual Paralegal Services

As with any new entity, the Cayman Islands LLC will inspire curiosity and uncertainty in the business community. There is ample reason for optimism, however, based on similar entities and on the reputation of the Cayman Islands for fostering a climate favorable to offshore businesses.

Similar and compatible

Perhaps the most reassuring aspect of the Cayman LLC is its similarity and compatibility with a known entity, the Delaware LLC.

The Delaware LLC is well known in the legal field. What are also well known are the advantages that come with this choice of entity. For example, they offer excellent liability protection, shielding members’ assets from creditors. This is because the law treats limited liability companies as separate legal entities from their owners. Partnerships do not experience the same protection, as the law does not recognize them as independent corporate bodies. This results in members’ exposure to liability from creditors.

Additionally, Delaware LLC operating agreements allow members to structure the company in ways tailored to the unique needs of the entity. They allow for flexibility in the tax treatment of the business. They are easy to form, easy to maintain and easy to dissolve when the business has run its course.

Delaware law also specifically allows for the creation of a type of LLC known as the Series LLC. Series LLCs are an arrangement by which the members and managers of an LLC can subdivide their interests into a number of separate divisions. Each division is an LLC of its own, with the asset protection and other business rights and powers of any LLC. Series LLCs allow groups to pursue various business strategies without exposing the entire enterprise to risk. One division can fail without destroying the others.

Please contact Virtual Paralegal Services if we can help you to further understand. We’re here for you.

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Who is affected by a Cayman LLC?

June 28th, 2016 By Virtual Paralegal Services

Private equity funds and family holding companies could certainly benefit from the ease of use and freedom afforded by a Cayman LLC. The need for flexibility in these arrangements has often forced members into forming exempted limited partnerships, despite the liability exposure. Those looking to create a private fund will now be able to form a Cayman LLC without being forced to decide between the accounting and structural limitations of an exempted company and the need for a general partner to take the lead in managing an exempted partnership.

Most legal commentators identify the investment funds industry as the primary beneficiary of the new Cayman LLC entity. Cayman LLCs could easily expand beyond the U.S. investment field, however. The limited liability company is a relatively new phenomenon in the United States. Internationally, it is almost unknown. Cayman LLCs may become a popular choice for a range of limited use corporate transactions. Depending on the goals of the business, special purpose entities could be organized as Cayman LLCs based on the tax benefits and liability protection afforded to members.

Hedge Funds Reap Benefits

Hedge funds that use a master-feeder structure will, perhaps, be the most affected by the new Cayman LLC entity. A large number of hedge funds currently use a Delaware LLC with a Cayman exempted limited partnership or a Cayman exempted company. Typically, the Delaware LLC will serve as the sole general partner in the Cayman exempted limited partnership. The introduction of the Cayman LLC may allow for a smoother, more efficient relationship between the two participating entities.

A Clear Alternative

Choosing the right entity for a business is a vital first step. The Cayman LLC provides an alternative legal structure that may be advantageous.

Businesses looking for an offshore opportunity that finds the happy middle ground between a partnership and an exempted company should consider the Cayman LLC. In particular, family wealth companies and private equity funds should learn about this entity and its potential benefits.

For clients currently operating a Delaware LLC, the Cayman LLC could allow for the rapid and predictable creation of a partner for a master-feeder relationship. It is an alternative that is likely to be attractive to many new and current investors.

While many ventures will prefer to remain in their current forms, the possibilities that the Cayman LLC offers could improve efficiency and greatly ease the burden of managing an offshore business.

For assistance with forming a Cayman LLC and other services, please contact Virtual Paralegal Services today.

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What is a Cayman LLC?

June 24th, 2016 By Virtual Paralegal Services

This is the first in a series of blogs pertaining to the pros and cons of a Cayman LLC, how to form and convert one and who most benefits. We’ll start with a basic overview here.

The laws of the Cayman Islands make it a popular choice for conducting a range of business objectives. With options that call for no taxes on income or sales, no withholding taxes, and no inheritance or capital gains taxes, the Cayman Islands actively pursues policies intended to attract business ventures. To that end, 2015 saw the introduction of a new type of vehicle called a Cayman Islands limited liability company.

The Limited Liability Companies Bill, 2015 (Supplement No. 8 published with Extraordinary Gazette No. 99 dated 18th December, 2015), establishes the rules for forming and registering an LLC. The Legislative Assembly of the Cayman Islands approved the bill in early May. The bill is expected to come into force this summer.

A Cayman LLC has the potential to improve the operation of investment funds, as well as other businesses looking for flexibility and adaptability in their structure. Attorneys looking to help their clients choose the correct entity to accomplish their goals need to be aware of the Cayman LLC and its advantages and disadvantages.

What Is the Cayman LLC Replacing?

For those who would have previously chosen a Cayman Islands exempted company, the new Cayman LLC format will likely become a popular choice. Exempted companies have a number of benefits that will continue with the LLC. In particular:

  • They enjoy the tax neutrality so prized in the Cayman Islands.
  • They can be formed with a single entity—a shareholder in this case—listed on the Registrar of Companies.
  • They have minimal reporting requirements, as well as no minimum capitalization requirement.
  • These companies do not require a general meeting of members.
  • These benefits make exempted companies an excellent choice for foreign investors who conduct most of their business away from the Cayman Islands.

Cayman exempted companies do have certain drawbacks, however. The companies must issue shares to owners based on the owners’ contributions to the enterprise. That means they must also maintain funds that arise during the issuing of shares (the “share capital). It is worthwhile to mention that exempted companies are able to issue no par value shares. This reliance on shares limits the flexibility of the arrangement as it mandates a governance structure based on initial contribution to the enterprise.

Next week, we’ll review the difference between a Cayman LLC and a Delaware LLC. In the meantime, please contact Virtual Paralegal Services with any questions you may have. We are always ready to assist.

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