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LLC Formation
Limited Liability Companies (LLCs) became available in the Cayman Islands in 2016. An LLC is a hybrid form of business entity with characteristics of both a limited partnership and a company. An LLC is governed by an agreement among its members (LLC agreement), much like a limited partnership. However, like a company, its members enjoy limited liability.
The Limited Liability Companies Act, 2016, as amended (Law) imposes few formalities and affords investors in an LLC great flexibility in how they wish their LLC to be governed, with the Law deferring in many instances to the LLC agreement. The LLC has proved popular for a variety of structures including joint ventures, group restructuring entities, general partners, carried interest vehicles, asset holding, special purpose vehicles and investment management companies.
In order to form an LLC, the initial member (or members) will need to file a registration statement with the Registrar of Limited Liability Companies. The registration statement sets out the LLC’s name (along with any dual foreign name and its translation), the general nature of its business, the address in the Cayman Islands of its registered office and its term (or, if formed for unlimited duration, a statement to that effect). I
t also contains a declaration that the LLC will not undertake business with the public in the Cayman Islands other in furtherance of its business outside the Islands as contemplated by the Law. Subject to this restriction (and subject to any restriction that may be imposed under its LLC agreement), an LLC may carry on any lawful business, purpose or activity, whether or not for profit.
Formation and Registration
Upon the filing of the registration statement meeting the statutory requirements and the payment of a fee the Registrar will issue a certificate of registration.
The LLC is a body corporate with legal personality separate from that of its members. It is capable of exercising all the functions of a natural person of full capacity irrespective of any questions of corporate benefit.
An LLC has perpetual succession, the capacity to sue and to be sued and defend legal proceedings in its name, and the power to acquire, hold and dispose of property.
Legal Framework
Members
An LLC must have at least one member at all times.
Member’s Contributions
The liability of a member to contribute to the assets of an LLC is limited:
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to the amount that the member has undertaken to contribute to the assets of the LLC;
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to making such other payments or performing such services as are expressly set out in the LLC agreement or as have otherwise been agreed between the member and the LLC; and
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to such other amounts as may be required to be paid or property required to be returned by the member to the LLC pursuant to the LLC agreement or the Law.
The contributions of a member to an LLC may be in cash, property, other assets, services rendered or other obligation to contribute cash or property or assets or to perform services.
Management
Unlike a company, an LLC does not have a board of directors. Instead, the management of an LLC is vested in its members acting by a majority in number. If an LLC agreement provides for the management, in whole or in part, of the LLC by one or more managers, the management of the LLC, to the extent so provided, is vested in the managers. A manager may also be a member.
The rights and duties of the members and managers in an LLC shall be determined by the LLC agreement and, unless otherwise provided in the agreement, each member and manager has the authority to bind the LLC. An LLC agreement may provide for classes or groups of managers having such relative rights, powers and duties as that agreement may provide and may make provision for the future creation of additional classes or groups of managers having such relative rights, powers and duties as may from time to time be established.
LLC Agreement
The LLC agreement is of highly important to an LLC as it sets out the rights and duties of members, the procedures for being admitted to or retiring from the LLC and transferring or encumbering members’ interests, the making and treatment of members’ contributions, the allocation of profits and losses and distributions, the appointment of managers, the duties and liabilities of the managers, the execution of documents on behalf of the LLC, procedures for calling and holding meetings of managers or members, winding-up provisions etc.
Liability
The debts, obligations and liabilities of an LLC are solely the debts, obligations and liabilities of the LLC and no member or manager of an LLC is obligated personally for any debts, obligations and liabilities of the LLC solely by reason of being a member or acting as a manager of the LLC.
Registered Office
An LLC must have and maintain a registered office in the Cayman Islands. The Law imposes on an LLC the obligation to cause to be kept proper books of account, including a record of the contributions of, and distributions to, each member. The registered office service provider must be licensed, such as Bell Rock Group.
Taxation and Exchange Controls
No taxation on the profits, income or dividends of an LLC, nor is there any capital gains tax, estate duties or inheritance tax under Cayman Islands law. Furthermore, an LLC may apply to the Financial Secretary at the Ministry of Finance & Economic Development of the Cayman Islands for a written undertaking that should a law ever be enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations, that law shall not apply to the LLC or any member of the LLC in respect of the LLC’s operations or assets or the membership interest of any member. This undertaking may be granted for up to 50 years from the date of the undertaking, but is normally granted for a shorter period in the first instance. The undertaking may also provide that these taxes and any tax in the nature of estate duty or inheritance tax shall not be payable in respect of the obligations of the LLC or the interests of members therein.
There are no exchange controls in the Cayman Islands, which allows free transfer of funds in and out of the Islands, in any currency, with equal freedom to open and maintain accounts in any currency.
For further information on forming a LLC and associated services such as registered office then please contact us: info@bellrockgroup.com
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