Legislation is currently in force in the Cayman Islands (‘Cayman’) which requires certain companies and limited liability companies (‘LLCs’) (collectively referred to herein in as ‘Company’) to provide information on their beneficial ownership. Amendments made in December 2017 make changes to exemptions from the regime, which means that Companies which have already assessed whether the legislation applies to them must urgently review that decision. It is suggested that all Directors of all Cayman Companies identify whether their Company falls within the scope of the legislation and regulations set out below (collectively hereinafter referred to as ‘the Law’). Where a Company falls within the scope of the Law, there are obligations already in force that the company must meet to prevent penalty under the Law. The ‘grace period’ in which non-compliant entities will not be prosecuted expires on 30 June 2018.
To view this article in PDF format, click here
Update April 2018 - In an Industry Advisory dated 5 April 2018 the Competent Authority provided a link for a new CD which CSPs will need to use the new file format (Version 1.20) which will take effect as of this April 2018 data submission.. This link gives access to the File Guide, the sample file and the CD Image required to validate and encrypt the new format.
The Legislation and Regulations (the ‘Law’)
The Companies (Amendment) Law 2017 the (‘CAL’) and The Limited Liability Companies (Amendment) Law, 2017 (‘LLC law’) were introduced in July 2017. The Companies (Amendment)(No.2) Law 2017 (‘CAL2 Law’); and The Limited Liability Companies (Amendment) (No.3) Law, 2017 (‘LLC 3 Law’) (the ‘Amended Laws’) came into force on 13 December 2017. The Beneficial Ownership (Companies) Regulations, 2017 and The Beneficial Ownership (Limited Liability Companies) Regulations, 2017) are already in force (‘BO Regulations’) and the Beneficial Ownership (Companies) (Amendment) Regulations, 2018 and Beneficial Ownership (Limited Liability Companies) (Amendment) Regulations, 2018 are expected in the first week of March 2018.
Is the Company exempt?
It is a useful starting point for the Directors to assess if the company is exempt from keeping a Beneficial Ownership Register (‘BOR’) as prescribed under the Law. The December amendments to the Law modified the exemptions which apply and care should be taken to ensure you apply the correct criteria. Companies (or their subsidiaries) which are exempted from keeping a BOR are those which are:
- a) listed on the Cayman Stock Exchange or one approved in Schedule 4 of the Companies Law (2016 Revision);
- b) registered or holding a licence under a ‘regulatory law’ as defined in s. 2 of the Monetary Authority Law (2016 Revision) (other than the Directors Registration and Licensing Law 2014) and other than a Company which is registered as an excluded person under s.5(4) of the Securities and Investment Business Law (2015 Revision) (‘SIBL’) which is not exempt under other provisions;
- c) managed, arranged, administered, operated or promoted by an approved person as a special purpose vehicle, private equity fund, collective investment scheme or investment fund (including where these are Exempted Limited Partnerships), other than a Company which is registered as an excluded person under s.5(4) of SIBL which is not exempt under other provisions;
- d) are regulated in a jurisdiction other than Cayman but which is approved by the Anti-Money Laundering Steering Group under section 5(2)(a) of the Proceeds of Crime Law (2017 Revision as having equivalent legislation pursuant to the Anti-Money Laundering Regulations, 2017);
- e) a general partner of a vehicle, fund or scheme referred to in paragraph (c) that is
(i) registered or holds a licence under a regulatory law (such as the Mutual Funds Law (2015 revision)); or
(ii) is managed, arranged, administered, operated or promoted by an approved person; this does not include where (a) the entity only appoints an individual who is an employee of a legal entity which holds a licence under a regulatory law as a director; or where (b) the entity only appoints an approved person to provide its registered office in Cayman.
- f) holding directly a legal or beneficial interest in the shares of a legal entity which holds a licence under the Banks and Trust Companies Law (2013 Revision), the Companies Management Law (2003 Revision), the Insurance Law (2010 Revision), Part III of the Mutual Funds Law (2015 Revision) or SIBL, (licenses which require disclosure of both legal and beneficial ownership); or
- g) exempted by the BO Regulations (which currently do not provide for any other exemptions).
Exempt Companies must provide (in the prescribed manner) their Corporate Services Provider (see below) or the Registrar with written confirmation of their exemption which identifies which exemption is being claimed and the required information on the regulated legal entity, regulated parent entity or approved person. [s.245 (1) CAL2 Law and s.87(2)-(3) LLC3 Law)] The prescribed form is expected to be available on the portal set up by the Cayman Islands Beneficial Ownership Competent Authority shortly after new regulations which are expected in the first week of March 2018.
What if the Company is not exempt?
Where a Company is NOT exempt as set out above (hereinafter called a ‘Registrable Company’ or ‘RC’) and is by Law required to comply with the BOR, there are persons and/or entities that have certain obligations that arise under the Law. They are:
- - the appointed corporate service provider of the RC (‘the Corporate Services Provider’ or ‘CSP’)
- - the RC; and its ultimate beneficial owner (hereinafter called Registrable Persons as further defined below in Part I (ii)).
The following paragraphs set out a brief analysis of the obligations under the Law.
The Corporate Services Provider’s compliance with the Law
The RC must appoint a Corporate Service Provider (unless it is an Ordinary Resident company). [s.252 (2) CAL and s.78(b) LLC Law]
- 1. The appointed Corporate Service Provider must provide an information technology solution that enables it to establish and maintain the RC’s BOR on behalf of the RC. This solution can be provided either directly or through another CSP, and will provide the information on the BOR to the competent authority by way of the search platform established by the competent authority pursuant the Law. [s.261 CAL and s.87 LLC Law]
- 2. The Corporate Service Provider must assist with the establishment and maintenance of the BOR for the RC (to be maintained at the RC's registered office if this is not the same as that of the Corporate Service Provider). The CSP shall enter the ‘required particulars’ (see below) of the Registrable Person as provided to it by the RC in writing [s.253(2) CAL and s.79(2) of the LLC Law] in the prescribed format and manner. (This requirement in the relevant sections and not separate). For information on the required format, click here
- 3. The required particulars to be maintained are as follows:
full legal name
corporate or firm name
residential address and, if different, an address for service of notices
registered or principal office
date of birth
the legal form of the entity and the law by which it is governed
information identifying the individual from their passport, driver’s licence or other government-issued document including –
if applicable, the register of limited liability companies in which it is entered and its registration number in that register and
the date on which the individual became or ceased to be a registrable person in relation to the LLC or company in question.
the date on which it became or ceased to be a registrable person in relation to the LLC or company in question.
If there is no Registrable Person (see Part I (ii) below), the Corporate Services Provider must enter a nil return. [s.253 (2) CAL and s.79 (2) LLC Law]
Where the Corporate Service Provider is of the view that the RC has failed to comply with the provisions of the law without reasonable excuse or has made a statement to them that is false, deceptive or misleading in respect of a material particular, the Corporate Service Provider shall give notice of its opinion to the RC. [s.256 (1) CAL and s.82 (1) LLC Law] If the issue relates to a Registrable Person not providing information to the RC then the RC is required to impose restrictions on them. [s.256 (3) CAL and s.82 (3) LLC Law]
The corporate services provider is also required to regularly deposit BO information received from the companies and LLC that have retained it, in such manner and at such intervals as may be prescribed. Default shall incur a penalty of CI$500; and which incurs an additional penalty of CI$1,000 and a further penalty of CI$ 100 for every day during which the default continues increases where the competent authority is satisfied that the default was knowingly or wilfully authorized or permitted. [s.261 (2-3) CAL and s.82 (2-3) LLC Law]
Part I (ii)
Who is a Registrable Person?
‘Registrable Persons’, may be individuals or entities (such entities are referred to in the law as ‘relevant legal entities’).
Individuals as Registrable Persons
Working out who is included has to be determined by applying the Regulations (Part 4 of The Beneficial Ownership (Companies) Regulations, 2017 and Part 4 of The Beneficial Ownership (Limited Liability Companies) Regulations, 2017). As a general guide, under the relevant laws [s.247 CAL and s.73 LLC Law] for an individual to be classed as a beneficial owner they must hold, directly or indirectly, more than either:
- a) 25% of the shares in the Company
- b) 25% of the voting rights in the Company
- c) the right, directly or indirectly, to appoint or remove a majority of the board of directors or managers of the LLC.
If no individual meets those conditions in a-c above then an individual or trust or partnership or other non-legal person may be classed as a beneficial owner if it has the absolute and unconditional legal right to exercise (or actually exercises) significant influence or control over the Company through an ownership structure or interests described in a-c above, other than solely in the capacity of a director, professional advisor or professional manager.
Relevant Legal Entities as Registrable Persons
As a general guide, Companies or other ‘relevant legal entities’ can be registrable persons if they are incorporated, formed or registered in Cayman and would be a beneficial owner of the company if they were an individual. [s.248 CAL and s.74 LLC Law]
The Registrable Company’s compliance with the Law
The RC must ensure that it has a Corporate Service Provider to establish and maintain the BOR unless it is an Ordinary Resident Company and in which case it has the option to comply through the Registrar of Companies.
- 1) It is the obligation of the RC [through its Directors] to take reasonable steps [s.248 (1) CAL and s.73 (1) LLC Law] to identify the RC’s Registrable Persons or those who they have reasonable cause to believe are a Registrable Person. [s.249CAL] there is also an obligation on Registrable Persons to disclose even if they have not received a notice. [s.250 CAL and s.76 LLC Law]
- 2) The RC shall send the notice set out below to those persons it believes to be Registrable Persons, with the required particulars therein, to confirm or correct the following information in its records, within one month of the date of receipt of the notice:
- - whether or not they are a Registrable Persons; and
- - if they are a Registrable Person to confirm or correct any required particulars that are included in the notice and supply any required particulars that are missing from the notice. [s.249 (2)(b) CAL and s.75(2)(b) LLC Law]
- 3) The RC is entitled to rely without further enquiry on the response from a Registrable Person to a notice in writing sent in good faith by the RC, unless the RC has reason to believe that the response in misleading or false. [s.247(2) CAL and s.73(2) LLC Law]
- 4) Where relevant, in addition to the above the RC may also request by notice in writing to a registered shareholder or a legal entity that the RC knows or has reasonable cause to believe knows the identity of the Registrable Persons the following:
- - whether or not they know the identity of a Registrable Person or a person likely to have that knowledge; and
- - if so, within one month of receipt of the notice, to supply at the expense of the company, any required particulars of such Registrable Persons that are within the addressee’s knowledge, and whether the particulars are being supplied with or without the knowledge of the person concerned.
- 5) The recipient of such a notice does not have to disclose any information which is legally privileged or they are prohibited by law from disclosing it.
- 6) A company does not have to send out such notices listed above to an individual or relevant legal entity if it knows that the individual or entity is not a Registrable Person or it has already received the required particulars for the BOR.
- 7) Where the RC becomes aware of or has reasonable cause to believe a change has occurred to the required particulars set out below for a BOR with respect to a Registrable Person (a relevant change), it must give notice to the Registrable Person as soon as reasonably practical:
- - a Registrable Person ceases to be a Registrable Person; and
- - any other change occurs to the BOR are materially incorrect or incomplete.
- 8) The RC must then instruct the Corporate Service Provider to enter in the BOR:
- - details of the relevant change
- - date on which the change was made; and
- - any further alterations to be made.
- 9) Where a RC has received a response to its notice under Part II Clause 2 above, it shall provide the Corporate Services Provider with the missing particulars and justification or correction respecting any statement identified in the notice.
- 10) If the Registrable Person fails to provide the required details and the RC is therefore unable to comply within a month of receiving the notice under Part II Clause 2 above, the RC shall issue a restriction notice to the Registrable Person and send a copy of the notice to the Competent Authority as defined by Law within two weeks of issuing the same.
- Part III
- Registrable Persons’ (and other persons) compliance with the Law
- 1) Registrable Persons must, upon receipt of a notice under Part III above, provide the information requested in the notice within a month of the date of receipt of the notice.
- 2) Where a Registrable Person has not in fact received the required notice for a period of at least a month of being a Registrable Person, but is aware that he is a Registrable Person and has no reason to believe his required particulars are not in the BOR he or she shall:
- - send notice to the RC of his status as a Registrable Person;
- - state the date on which he became a Registrable Person; and
- - give the required particulars
- 3) It is therefore a good idea for a shareholder or potential beneficial owner of shares to contact the Directors of the Company to ensure compliance.