The Foundation Companies Law, 2017 introduced a new type of company in the Cayman Islands, the foundation company. This expands the options available to businesses, which includes the introduction of the Cayman Islands LLC in 2016.

A Foundation is similar to a traditional exempted company in that it has separate legal personality and limited liability but it also shares some similarities with a civil law foundation or common law trust. A Foundation can be seen as a hybrid of a company and a trust incorporating elements of both, and allowing a great deal of flexibility.

A Foundation therefore has the advantage of being able to be used as an alternative to a trust, which is commonly used in wealth planning and certain capital market transactions. It is anticipated that the Foundation will particularly be of interest to private clients from a civil law background who are unfamiliar with the common law trust or who have concerns about the tax treatment of trusts. The Foundation may thus prove to be a popular succession planning or asset protection vehicle. Since it is also possible for a Foundation to act as an orphan vehicle, it may also prove to be a popular vehicle in certain capital markets or other commercial transactions.

How to establish a Foundation Company

The incorporation process is the same as for an exempted company, however there are a few additional requirements that must be met, A Foundation must have adopted memorandum and articles that state it is incorporated as a foundation company and describe its objects and it must appoint a secretary who is a person licensed to provide company management services in the Cayman Islands. The registered office of a Foundation must be the same address as that of the secretary.

Understanding the advantages of a Foundation Company

The key advantage of a Foundation is its flexibility in respect of its constitutional documents. The constitutional documents can be finely tailored to specify how a Foundation will be managed and operated and how rights, powers and duties shall be assigned to founders, members, directors, supervisors or others. Powers given by the constitution may be given for the benefit of the Foundation, for the benefit of the done or for any other purpose and may be subject to any condition.

Unlike an exempted Company, after incorporation a Foundation can cease to have members as long as it has one or more supervisors. A supervisor is any person, other than a member, who under the constitution has a right to attend and vote at general meetings, whether or not the person has supervisory duties or powers. In addition to the statutory registers required to be maintained by an exempted company, a Foundation must also maintain a register of supervisors.

Further, not only does the Foundation provide flexible and additional structuring options, it can also reduce certain operational costs as a professional trustee would not be required to be appointed as it would for a common law trust.

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.