On 18 December 2015, the Cayman Islands published a bill for the creation of a new law to permit the formation of a new type of vehicle in the Cayman Islands, a Cayman Islands limited liability company (LLC). 

On the 8 July 2016 this highly anticipated and exciting development came into force in the Cayman Islands when the Limited Liabilities Companies Law 2016 (LLC Law) was commenced. This law provides the market with a corporate vehicle that is closely aligned with the Delaware limited liability company and which contains a number of features that make it much more flexible than a Cayman Islands exempted company (being the usual entity used for Cayman structuring purposes).

Whilst many stakeholders, particularly North American stakeholders, that are already familiar with some of the key characteristics of a Delaware LLC will no doubt welcome the introduction of this new law, Harneys also expects that the introduction of the Cayman LLC will also be welcomed by clients in other jurisdictions – particularly in Asia, where there has been strong demand for a more flexible corporate offshore structure that is more aligned to the expectations of Asian stakeholders.  In addition, Harneys expects that this new LLC will also be very popular with stakeholders who are looking for a flexible vehicle to facilitate corporate transactions including joint venture and special purpose company structures where the LLC framework (via the LLC agreement) can be developed to suit the requirements of the particular transaction. 

For example, a Cayman LLC may be operated by a majority of the members or manager(s) who do not owe any fiduciary duties to the LLC or any member or other person except, in the case of the manager(s), a duty of good faith (which duty can be expanded or restricted by the express provisions of the LLC agreement). As such, the Cayman LLC will be particularly attractive to the private equity industry, private wealth and family offices and venture capital promoters who are looking for an alternative corporate structure where the participants can operate a structure in their own interests largely without the traditional burden, fiduciary responsibilities and associated liabilities of directors of a company. The LLC Law thus provides great flexibility to members of an LLC to regulate their relationship in their LLC agreement.

Key Features

Upon the introduction of the LLC Law the Cayman Islands LLCs will have the following key features:

  • A LLC is a body corporate (with separate legal personality from its members) with limited liability 
  • A LLC may be formed for any lawful business, purpose or activity
  • A LLC will require at least one member (there are no Cayman Islands residency requirements for members)
  • A LLC must have a registered office in the Cayman Islands
  • Registration is effected by payment of a fee and filing a certificate of formation (ie similar to a section 9 statement for an exempted limited partnership)
  • A LLC may (but is not required to) use one of the following suffixes in its name: "Limited Liability Company", "LLC" or "L.L.C.". No other company or entity registered under the Cayman Islands Companies Law may use these words or abbreviations in its name, unless it is or will be an entity registered under the Companies Law (current 'foreign company' registration) or it is an existing entity that is currently using one of these words or abbreviations in its name
  • Members are required to enter into a LLC agreement governed by Cayman Islands law to regulate the business or affairs of the LLC and the conduct of its business or affairs. Members are free, however, to agree amongst themselves the internal rules and regulations, subject to appropriate minimum safeguards
  • The LLC agreement is not required to be filed or registered with the Registrar of Companies (which is in line with current Delaware law)
  • The LLC Law makes provision for the vesting of management powers in members or alternatively in one or more managers as set out in the LLC agreement (as is the case for members, there are no Cayman Islands residency requirements for managers). Further and as mentioned previously, the members or manager(s) do not owe any fiduciary duties to the LLC or any member or other person except, in the case of manager(s), a duty of good faith (which duty can be expanded or restricted by the express provisions of the relevant LLC agreement)
  • Subject to the terms in the LLC agreement, LLC interests are capable of withdrawal on demand of notice by members
  • Subject to the LLC agreement, members are entitled to grant security over the whole or any part of their LLC interest and any such security interest shall have priority according to the time that the written notice of such security interest, signed by each of the secured party and the relevant member, is validly served at the registered office of the LLC, amongst other matters
  • The LLC is required to make an annual return to the Registrar in January each year and to maintain a register of mortgages, a register of contributions; a register of managers, a register of security interests over LLC interests and a register of mortgages and charges and as in the case with exempted companies under the Cayman Islands Companies Law, pay an annual return fee
  • The LLC Law makes provision for the creation of classes of member/interest
  • The liability of a member to contribute to the assets of a LLC is limited to the amount that the member has undertaken to contribute to the assets of the LLC, any other payments as set out in the LLC agreement and such other payments or return of property as required under the LLC agreement or the LLC Law
  • The LLC Law seeks to preserve the rules of equity and common law (that are not inconsistent with the provisions of the LLC Law) as noted above whilst addressing minimum statutory duties in the context of members and managers
  • The LLC Law makes provision for the applicability of other Cayman Islands laws to a LLC, therefore a LLC will automatically be incorporated into, for example, (a) the Mutual Funds Law so that a LLC can be structured as a mutual fund; (b) the Exempted Limited Partnership Law so that a LLC can be formed to act as a general partner of an exempted limited partnership; and (c) the Securities Investment Business Law so that a LLC can be formed to act as an investment manager or investment advisor to a mutual fund or general partner of an exempted limited partnership
  • The LLC Law allows for the conversion of exempted companies into LLCs, reconstruction, amalgamations, mergers and consolidation and the migration of foreign LLCs into the Cayman Islands
  • Consistent with OECD commitments, provision is made for various registers to be maintained and, as appropriate, filed or made available to Cayman Islands authorities (being a register of members, register of managers and a register of mortgages and charges and maintaining books of account for at least five years.

The LLC Law creates a great framework upon which to launch the new vehicle and is a welcome addition to the existing suite of Cayman vehicles, reinforcing Cayman's position as the world's leading offshore jurisdiction for the investment funds industry.

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.