Guide to companies in the Cayman Islands

Types of Cayman companies

Companies incorporated in the Cayman Islands fall into two principal categories: companies formed to trade primarily in the Cayman Islands and companies incorporated for the purpose of conducting business outside the Cayman Islands. This overview of Cayman Islands companies is concerned only with the latter kind, known as exempted companies, in their most typical form, being companies of unlimited duration limited by shares.

rULES FOR INCORPORATING Cayman Islands companies

Names

The name of a Cayman Islands company may not be identical to, or closely resemble, that of another company incorporated in the Cayman Islands (unless the company is in the course of being dissolved and has signified its consent). The use of the words “Chamber of Commerce” or “Building Society” is prohibited. Words that might imply royal or governmental endorsement, or that suggest that the entity is highly regulated (e.g. “Bank” or “Insurance”) are also prohibited, except with the consent of the Registrar of Companies. Exempted companies need not include “Limited” or “Ltd” in their names. Companies are permitted to have dual foreign names.

A company may change its name by filing a special resolution with the Registrar. If the Registrar determines that a name chosen by a company contravenes the Companies Act or is, in the opinion of the Registrar, misleading or undesirable, the Registrar may direct the company to change its name.

THE Cayman islands INCORPORATION PROCESS

Incorporations are conducted by licensed company service providers in the Cayman Islands. The filings are done online and incorporation can take as little as one business day to complete.

The first step in the incorporation procedure is the reservation of the name with the Registrar. Once the memorandum and articles of association have been prepared, application to incorporate is made to the Registrar.

The Registrar receives the application, comprised of the memorandum and (typically) the articles, the applicable fee payable to the Cayman Islands Government and an affidavit sworn by the subscriber confirming that the operations of the company will be conducted mainly outside the Cayman Islands, then registers the company on the register of companies and signs and issues the company’s certificate of incorporation. The registration of the company completes the company’s formation and the issue of the certificate forms evidence of the registration.

“KNOW YOUR CLIENT” REQUIREMENTS

Cayman Islands company service providers are required to undertake the necessary reviews to ensure that stringent “Know Your Client” (KYC) obligations are met. This involves gathering information on the persons who will be the registered members of the company, as well as those who will hold an ultimate beneficial interest in the issued shares. In some circumstances, KYC procedures will be applied to those who control the company, even though they may not be members or beneficial owners. Certified identification of each verification subject is typically required. The precise KYC obligations vary depending on the nature of the company in question (e.g. funds, regulated entities, companies the shares of which will be listed on certain stock exchanges). A complete discussion of the Cayman Islands’ robust anti-money laundering, anti-terrorist financing and anti-proliferation financing regime is beyond the scope of this Overview, but the important point is that KYC obligations are taken seriously and the incorporation process can only occur once the KYC requirements have been fully met.

CONSTITUTIONAL DOCUMENTS

The constitution of an exempted company is comprised of its memorandum and articles of association.

MEMORANDUM

The memorandum of every company must state:

• the name of the company; and
• the address of the company’s registered office in the Cayman Islands.

In addition, in the case of a company limited by shares, the memorandum must contain:

• a declaration that the liability of its members is limited; and
• the amount of capital with which it proposes to be registered and the division thereof into shares of a fixed amount, which may be stated in any currency.

An exempted company may propose to be registered with shares without nominal or par value, in which case the memorandum must also state the amount of the aggregate consideration for which such shares may be issued. An exempted company is not permitted to divide its capital into both shares of a fixed amount and shares of no par value.
Each subscriber to the company must sign the memorandum in the presence of at least one witness, who will attest the signature. Once the memorandum is registered it will bind the company and its members.

OBJECTS

The memorandum of an exempted company must also contain an objects clause. The objects clause in the memorandum may restrict the company to specific objects. Alternatively, no objects may be specified, or objects may be specified without the company’s business being restricted to them. In the absence of specific restrictions in its objects clause, a company will have full corporate capacity to exercise all the functions of a natural person and the company will have the authority to carry out any object not prohibited by law. Certain types of activity nonetheless require a company to possess a licence under the applicable regulatory law, e.g. banking and trust business, insurance or company management.

No act of a company and no disposition of real or personal property to or by a company will however be invalid by reason of the company lacking the capacity or power to perform such an act. That is to say, an ultra vires act will not be invalid if a legal obligation has already been incurred.

SHARE CAPITAL

In the case of a company with members’ liability limited by shares, the limit of liability is the amount, if any, unpaid on the capital subscribed. Accordingly, on an insolvent winding up, a member will be liable for an amount up to, but not exceeding, the amount then remaining unpaid on his shares. The Companies Act does not require that shares be evidenced by a certificate and prohibits the issue of bearer shares.

ARTICLES

The articles of a company govern its internal organisation, management and administration. The rights and duties of the members as against the company, and as between the members themselves, are also set out in the articles, which constitute a contract between these parties. Nothing in the Companies Act permits the public to inspect, or to obtain copies of, a company’s articles, as filed with the Registrar. The articles are, therefore, a private document.

what are the requirements for Cayman Islands companies POST-INCORPORATION?

Typically, upon the issue of the certificate of incorporation, the subscriber will transfer the initial share to the company’s intended registered holder. Additional shares may then be issued to those who subscribe for some or all of the balance of the shares making up the company’s authorised share capital. Nominee arrangements (i.e. arrangements for holding shares on behalf of the beneficial owners) are permitted, but note the KYC requirements above.

The initial subscriber will frequently be a representative of the company service provider that has been engaged to provide a registered office and/or other company administration services on the company’s behalf. This representative (or the service company) will usually appoint the first directors of the company and will transfer the shares that it holds to the beneficial owner. The directors and officers will typically be nominated by the promoters or by the beneficial owners (to whom, or to whose nominees, some or all of the authorised share capital will have been issued in the course of the organisation). The first directors will complete the initial steps of the organisation process, including:

• adopting the first director’s resolutions;
• appointing the officers and service providers of the company;
• issuing such number of the remainder of shares authorised by the company’s memorandum as have been subscribed for;
• adopting the company’s common seal (if any);
• updating the company’s registers of members and directors; and
• completing all necessary filings with the Registrar.

The directors and officers will then continue their management of the company’s operations in accordance with the memorandum and articles, by passing resolutions in order to authorise the company to enter into its planned engagements.

LOCAL REQUIREMENTS

REGISTERED OFFICE

Every company must have an office registered in the Cayman Islands to which all communications and notices can be sent. Notice of the address of the registered office must be given to the Registrar who will record the address and publish it by Public Notice. Any member of the public is entitled, on request to the Registrar, to be informed as to the location of the registered office of any company. The name of a Cayman company must be easily legible on the outside of every office or place in which the business of the company is carried on.

ANNUAL RETURNS

In January of each year after the year of its registration, each exempted company must furnish to the Registrar a return that must be in the form of a declaration, which states that:

• since the previous return or since registration, as the case may be, there has been no alteration in the memorandum, other than an alteration in the name of the company or the objects, powers or matters set out in the memorandum, and already reported;
• the operations of the exempted company since the last return or since registration, as the case may be, have been mainly outside the Islands; and
• the company has not traded in the Islands with any person, firm or corporation except in furtherance of the business of the exempted company carried on outside the Islands.

Should an exempted company fail to furnish to the Registrar the return, the company will incur a penalty and be liable to being struck off the register.

Companies must also indicate in their returns whether or not they are exempted from the Cayman Islands’ economic substance regime. If they are not exempted, a declaration must be made as to whether or not they are carrying on relevant business activities. Full particulars of the economic substance regime and the required filings are beyond the scope of this Overview. Please see our website or get in touch with your usual Appleby contact for more information.

DIRECTORS

The Companies Act does not stipulate a procedure for the appointment of directors; accordingly, the appointment of directors will be governed by the company’s articles. A Cayman Islands company is not required to appoint officers (apart from one or more directors), although it is advisable (and usual) for the board of directors to appoint a secretary.

The articles will also make provision for matters such as directors’ qualifications, terms of office and retirement, removal and rotation of directors, regulation of directors’ meetings, proceedings of the board and notice requirements, and the manner of determining questions that arise at board meetings. Sole directors and corporate directorships are permissible.

DIRECTORS’ MEETINGS

Directors meetings may, but need not, be held in the Cayman Islands. The convening and conduct of a board meeting will be governed by the articles. While the Companies Act does not prescribe any particular period for the giving of notice of a board meeting, the common law requires that adequate notice be given to all directors of a company in order for a board meeting to be duly convened and held.

REGISTERS

REGISTER OF DIRECTORS AND OFFICERS

Every company must maintain a register of directors and officers at its registered office, stating the name and address of each director and officer of the company and a copy must be sent to the Registrar. A company must amend the register and notify the Registrar if there are any changes among its directors or officers, or changes in the particulars contained in the register.

REGISTER OF MEMBERS

Every Cayman company must establish and maintain an up-to-date register of current members. Typically, the register will be located at the company’s registered office, although an exempted company may keep one or more branch registers, of any category or categories of members, in any country or territory. A branch register is deemed to be part of the exempted company’s register of members, and shall be kept in the same manner in which the principal register is required or permitted to be kept. Where a company keeps a branch register, an up-to-date copy of the branch register must be kept at the place where the principal register is kept.

The register of members must indicate:

• details of the names and addresses of the members of the company;
• the respective number (and class) of shares held by each member;
• the amount paid (or credited as paid up) on the shares held;
• whether the shares carry voting rights and if so, whether such rights are conditional; and
• the date a member became, and ceased to be, a member.

REGISTER OF MORTGAGES AND CHARGES

The register of mortgages and charges is required to show any and all property of a company which is subject to mortgages or charges, such as an encumbrance or a security interest of some kind. Entries in this register must include, in respect of each such mortgage or charge: a short description of the secured property, the amount or value of the charge created, and the name of the secured party. The register of mortgages and charges must be kept at the registered office of the company and must be open to inspection by any creditor or member of the company at all reasonable times.

REGISTER OF BENEFICIAL OWNERS

Subject to the availability of certain “alternative routes to compliance” all Cayman companies must maintain at their registered office a register containing details of beneficial ownership information. There is currently no public access to such beneficial ownership registers.

MEMBERS’ MEETINGS

Exempted companies are not required to convene an annual general meeting unless the articles provide otherwise. There is no requirement in the Companies Act for member meetings to be held in the Cayman Islands.

The directors may convene an extraordinary general meeting whenever they think fit and must do so when requisitioned by one or more members holding in the aggregate not less than one tenth of such paid up capital of the company with the right to vote.

Generally, at least five days’ notice is required for the convening of a members’ meeting. Notice should specify the place, date and hour of the meeting and the general nature of the business to be considered. Companies whose shares are listed on a stock exchange generally require a longer period of notice.

All members entitled to attend and vote at a general meeting are entitled to receive notice. Special attention must be paid to the specific rights attaching to each class of shares in relation to receiving notice and attending and voting at the meeting, matters prescribed under the Companies Act in respect of which holders of any class of shares are entitled to vote separately as a class and matters in respect of which members will have dissent rights.

DIVIDENDS AND DISTRIBUTIONS

Dividends may be paid out of profits or out of the share premium account of a company, but may not be paid out of a company’s capital. Where the intention is to provide the flexibility to pay dividends out of share premium, the articles should contain a provision which permits this. No dividend may be paid to the members out of a company’s share premium account unless the distributing company will be able to pay its debts as they fall due in the ordinary course of business immediately following the date on which the distribution is proposed to be paid.

The Companies Act does not regulate how profits of a company are to be calculated; however, the articles may contain provisions for this, as long as those provisions are consistent with the overall legal requirements. The articles may also provide that a company in general meeting may declare dividends, and may restrict the amount of any dividend so declared to an amount recommended by the board of directors.

RECORDS AND ACCOUNTS

Every company must keep minutes, i.e. written records of all resolutions and proceedings of a company’s members and of its directors (at meetings or otherwise).

The Companies Act requires companies to keep proper books of account with respect to their business dealings so that such books indicate a true and fair record of the company’s affairs and explain its transactions.

The books of account may be kept at the registered office or at such other place as the directors of the company think fit. Such books must at all times be available for inspection by an inspector appointed by the Court or an inspector appointed by the company. Inspection of a company’s books by members of the company who are not directors may be regulated by the company’s articles.

There is no requirement that such accounts be audited or that any accounts be filed with the Registrar or any other regulatory authority in the Cayman Islands unless the company holds a licence or is otherwise regulated under the laws of the Cayman Islands.

TAXATION AND EXCHANGE CONTROL

There is no corporate tax, taxation on profits, income, capital gains or dividends, or tax in the form of withholdings, estate duties or inheritance tax under Cayman Islands law. Profits may be accumulated and it is not obligatory that a company make distributions or pay dividends.

An exempted company may apply to the Governor of the Cayman Islands for a written undertaking that, should taxes ever be introduced into the Cayman Islands, the company will remain tax-free for a period of up to 30 years from the date of the undertaking. This undertaking is normally granted for up to 20 years, in the first instance, and may provide that (in addition to the exemption from capital gains, profits and income taxes) no tax in the nature of estate duty or inheritance tax shall be payable on, or in respect of, shares, debentures or other obligations of the company.

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.

An exempted company is required to pay an annual fee to the Cayman Islands Government. This annual government fee is calculated by reference to the company’s registered capital (as stated in the memorandum). The annual government fee is first payable upon the filing of the company’s memorandum at the time of incorporation and, subsequently, in January of each year following the year of incorporation.