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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