One of the reasons why the Cayman Islands is a leading offshore jurisdiction is the flexibility of Cayman Islands companies. The main legislation regulating the formation and operation of companies in the Cayman Islands is the Companies Act. English common law and equitable principles and precedents are also followed in the Cayman Islands, where applicable.

Overview

Under the Companies Act a limited company can be incorporated as either:

  • An "exempted company" - a company which has been registered as an exempted company on the basis of a declaration by the incorporating subscriber that the operations of the company are to be carried on mainly outside the Cayman Islands
  • An "ordinary company" - a term not directly defined by the Companies Act but being the commonly used term for companies incorporated in the Cayman Islands and not registered as an "exempted company"

Limited liability companies (LLCs) can also be incorporated in the Cayman Islands under the Limited Liability Companies Act, in a form closely aligned to the Delaware LLC. Please see our guide to Cayman Islands limited liability companies for more details.

Benefits of exempted companies

Exempted companies enjoy a number of privileges and exemptions when compared to ordinary companies and limited liability companies in other jurisdictions and so are frequently used to facilitate offshore financial and trust business. These advantages include:

  • minimal annual reporting requirements
  • no requirement for Cayman resident directors or shareholders
  • the register of shareholders does not have to be kept at the registered office and is not open to public inspection
  • no requirement to hold an annual meeting of its shareholders
  • ability to issue shares with or without nominal or par value
  • the company's name does not need to end in the word "Limited" or "Ltd." (please see below for name requirements for a segregated portfolio company and limited duration company)
  • an ability to deregister itself from the Cayman Islands and transfer by way of continuation into another jurisdiction where the laws of that other jurisdiction allow, or if incorporated outside the Cayman Islands a company may seek to transfer and be continued as an exempted company in the Cayman Islands
  • an entitlement to receive from the Cayman Islands Government, a renewable "Tax Exemption Undertaking", exempting it from any future Cayman Islands taxes for a period of up to 20 years, which may be extended to 30 years on special application

Establishment of an exempted company

An exempted company is incorporated by the subscription (signature) of the initial shareholder(s) to the memorandum of association. Traditionally, the incorporating agent or law firm provides a nominee subscriber for the initial incorporation, who signs the memorandum of association and articles of association (which govern the management of the company) to allow the company to be incorporated. An incorporation fee is payable to the Registrar of Companies (Registrar), which varies depending on the authorised share capital of the company.

Declaration by subscriber as to business outside the Cayman Islands

An exempted company may not carry on business within the Cayman Islands, except in furtherance of its business carried on outside the Cayman Islands, unless it holds a licence to carry on business in the Cayman Islands under any applicable law. A declaration signed by the subscriber to that effect must be submitted to the Registrar as part of the application to register an exempted company.

Certificate of incorporation

On filing the memorandum and articles of association, the declaration described above and payment of the incorporation fee, the Registrar will issue a certificate of incorporation. The certificate of incorporation is conclusive evidence that the requirements of incorporation and registration under the Companies Act have been met at that date.

Appointment of first directors and first meeting of directors

The subscribers to the memorandum of association appoint the first director(s) of the company, who are usually representatives of the incorporation agent or law firm and who will hold a meeting or pass resolutions to deal with initial organisational matters which will include appointment of client nominated directors.

The memorandum and articles of association

The memorandum and articles of association (M&A) together form an effective contract between the shareholders of the company, and between them and the company itself. The M&A set out the respective rights and obligations and the procedures of corporate governance to be followed, within the overall framework of the Companies Act, other relevant Cayman Islands statutes and common law principles.

Memorandum of association

The memorandum of association contains:

  • the name of the company
  • the location of the company's registered office in the Cayman Islands
  • the objects of the company
  • a declaration regarding the liability of the shareholders
  • details of the authorised share capital of the company
  • for an exempted company with shares without nominal or par value, the memorandum of association must detail the aggregate amount for which those shares may be issued. An exempted company may not have shares of both par value and shares of no par value at the same time
  • the date of the financial year end of the company

Articles of association

The articles of association (Articles) of an exempted company establish the internal governance of the company. An exempted company may adopt the standard or default articles of association in the form of "Table A" set out in the Companies Act or, more typically, adopt customised Articles in the usual form of the incorporation agent or incorporating law firm.

Registered office

Every exempted company must maintain a registered office in the Cayman Islands to which communications and notices may be sent. The location of the registered office is a matter of public record, notified to and published by the Registrar.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.