The Limited Liability Companies Bill, 2015 (the ‘Bill’) was published in the Cayman Islands (‘Cayman’) on 18 December 2015. This legislation is expected to result in Limited Liability Companies (‘LLCs’) being available in Cayman as an alternative form of corporate entity sometime during the first half of this year.
What is an LLC?
LLCs combine aspects of a traditional company with aspects of a limited liability partnership. A Cayman LLC will have separate legal personality, as with a regular company, but its internal workings will be governed by an agreement, as with a partnership. The capital structure of an LLC is similar to a partnership whereby the LLC’s members make capital contributions (although this is not a requirement) and their interests in the LLC are reflected in capital accounts rather than by share issues. Day to day management of an LLC can be performed by one or more of its members or by a nominated non-member. A list of managers must be kept in the LLC’s corporate books and provided to the appropriate registrar in Cayman.
Registering an LLC
Registration of a new LLC will require the filing of a registration statement and payment of the appropriate fee. The Bill also includes a mechanism for converting existing companies into LLCs.
Why are they being introduced?
The Cayman Islands Government (‘CIG’) is introducing LLCs mainly in response to requests from the investment funds industry. The option of forming a Cayman LLC will be particularly useful in setting up master/feeder structures that include a Delaware LLC since investment managers will be able to use the same type of corporate entity and documentation throughout the structure. An LLC may also be a more attractive option than a limited liability partnership for private equity and other closed-ended fund structures as it will allow the carried interest method of allocating performance fees to investment managers without the requirement for a local general partner with unlimited liability. It is not known at this stage how quickly the new product will be taken up, although Solomon Harris has already received enquiries about instances where a Cayman LLC would be required, including the re-domestication of a Delaware LLC to Cayman and re-registration here as a Cayman LLC. Also, Solomon Harris is aware of cases where a conversion from an exempted company to a Cayman LLC is being contemplated because, as a member managed entity withpartnership accounting and partnership characteristics it may be eligible for beneficial treatment under onshore tax rules. Because of their flexibility we expect that LLCs will also be used throughout the Cayman financial industry for various corporate and commercial purposes.
Solomon Harris will provide updates on the Bill as it makes it way through the legislative process. The firm has assisted the CIG with the formation of the Bill and is ideally qualified to assist clients with LLC enquiries. If you would like any additional information about LLCs please contact the corporate department at . For more information see the following article by Richard Addlestone, one of our corporate partners, for CNS Business https://cnsbusiness.com/2016/01/18/cayman-copies-delaware-law-for-limited-liability-legislation/.