The Cayman Islands’ stand out as a premier offshore jurisdiction, partly due to the adaptability of its company structures. Governed primarily by the Companies Act, and supplemented by English common law and equitable principles, the Cayman Islands offer two main types of corporate entities: exempted companies and ordinary companies.
Characteristics of Exempted Companies
Exempted companies, designated as such under the Companies Act, are corporations whose activities are primarily conducted outside of the Cayman Islands. They are distinct from ordinary companies, which are the standard corporate entities in the Cayman Islands but are not registered as exempted companies. Additionally, limited liability companies (LLCs) can be established, mirroring the structure of Delaware LLCs.
Advantages of Exempted Companies
Exempted companies are favored for offshore financial and trust business due to several benefits, including:
- Reduced annual reporting requirements.
- No necessity for local directors or shareholders.
- Privacy in shareholder registers, which need not be publicly accessible or located at the company's registered office.
- No obligation to hold annual shareholder meetings.
- Flexibility in share issuance, with or without nominal or par value.
- Potential for de registration in the Cayman Islands and continuation in another jurisdiction.
- Eligibility for a renewable Tax Exemption Undertaking from theCayman Islands Government, exempting from local taxes for up to 20 or 30 years.
Formation of an Exempted Company
Incorporation involves the subscription to the memorandum of association, typically facilitated by a nominee subscriber, such as an incorporating agent or law firm. The company is officially incorporated upon filing the memorandum and articles of association, along with a declaration of external business operations, and payment of the incorporation fee to the Registrar of Companies.
Operational Structure and Governance
The memorandum and articles of association (M&A) form a contractual framework for the company's governance. The memorandum details the company's name, registered office, objectives, share capital structure, and financial year-end. The articles outline internal governance mechanisms.
Management and Compliance Obligations
An exempted company is managed by a board of directors, appointed by the shareholders. While there's no requirement for annual shareholder meetings, the M&A and the Companies Act provide guidelines for shareholder voting and meeting procedures. The company must maintain a registered office in the Cayman Islands, and there's no restriction on the nationality or residence of its directors or officers.
Financial and Regulatory Compliance
Exempted companies must maintain accurate accounting records and comply with various regulatory requirements, including filing annual returns and adhering to the International Tax Co-operation (Economic Substance) Act. Additionally, there are specific regulations for companies engaging in certain types of business, such as mutual funds or private funds.
Transfers and Corporate Changes
Exempted companies have the flexibility to transfer out of the Cayman Islands or merge with other entities, subject to compliance with theCompanies Act. They can also be voluntarily or compulsorily wound up under certain conditions.
Economic Substance Requirements
In line with international tax standards, the Economic Substance Act requires relevant entities engaging in specific activities to demonstrate substantial economic presence in the Cayman Islands.
Conclusion
Exempted companies in the Cayman Islands offer a versatile and advantageous corporate structure for international businesses, combining regulatory compliance with operational flexibility.
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