Introduction

1. The Cayman Islands Limited Liability Company (LLC) regime came into operation on 13th July 2016 following the 8th July publication of The Limited Liability Companies Law, 2016 (Commencement) Order, 2016. Also on 13th July 2016 regulations were published setting out a schedule of fees and setting out requirements for a translator’s certificate where a foreign language name is adopted.

2. The Limited Liability Companies Law 2016 (the “LLC Law” or “the Law”) which provides for this new kind of Cayman Islands vehicle was enacted on 8th June 2016.

3. An LLC is similar to a Delaware limited liability company. It is a hybrid business vehicle with separate legal personality (like a Cayman Islands exempted company), but with certain features and flexibility akin to a Cayman Islands exempted limited partnership (including, with reference to the nature of a member’s interest in an LLC, the manner in which accounts are maintained and with parties having substantial freedom of contract amongst themselves to determine the LLC’s governance and other internal workings).

4. The LLC Law also allows for existing companies to convert into LLCs, for the merger or consolidation of an LLC with an exempted company or a foreign company and permits transfers by way of continuation into or out of the Cayman Islands.

Formation and Registration

5. The registration of an LLC is effected by the payment to the Register of Limited Liability Companies, maintained by the Registrar of Companies of the registration fee and by the filing with the Registrar of a registration statement signed by or on behalf of the party forming the entity which shall contain:

a) The name of the limited liability company and, if applicable, its dual foreign name together with its translated name;

b) The address in the Islands of the registered office of the liability company;

c) If the limited liability company has not been formed for an unlimited duration, the term, if any, for which a limited liability company is formed; and

d) A declaration that the limited liability company shall not undertake business with the public in the Islands other than so far as may be necessary for the carrying on of the business of that limited liability company outside the Islands as contemplated by the Law.

6. Every LLC shall have a name which may, but need not contain the words Limited Liability Company or the abbreviation “L.L.C” or “LLC”

Membership

7. A person may be admitted as a member of an LLC at the time provided in and upon compliance with the LLC agreement. If the LLC agreement does not provide then upon (i) the consent of all members and (ii) the person’s admission being reflected in the records of the LLC.

8. Pursuant to section 11(6) of the Law an LLC shall maintain at the registered office a register of security interests. Section 62 of the Law also requires a register of mortgages and charges to be maintained at the registered office.

9. By s 61 of the Law an LLC shall maintain at its registered office or at any other place within or outside the Islands, a register of its members which shall contain the name and address of each person who is a member of the limited liability company, the date on which such person became a member and the date on which such person ceased to be a member.  Such register shall be updated within twenty-one days of any change in the particulars therein. This register is not required to be filed with the Registrar of Companies or any other public body.

10. Based on s 62 of the Law and an interpretation of the fee schedule it is apparent that where a manager is appointed there shall be a register of managers and that same is required to be filed with the Registrar in much the same way as a register of directors for an exempted company.   By s 63 (1) of the Law, every LLC shall cause to be kept proper books of account but there is no requirement in this Law for a formal audit.

LLC Agreement

11. An LLC agreement is defined as an agreement in writing of the members as to the business and affairs of an LLC which may be entered into at any time before, after or at the time of filing the registration statement.

12. The members of an LLC are required to enter into an LLC agreement to regulate the business or affairs of the LLC and the conduct of its business or affairs. (s 16(1)).

13. The LLC agreement is not required to be filed or registered with the Registrar (s 16(3)).

14. Neither the manager nor the members are financially liable for any debt, obligation, or liability of an LLC. The liability of a member is limited to the contribution he has undertaken to make whether in the LLC agreement or elsewhere (s 21).

15. Unless otherwise provided in the LLC agreement, the management of the LLC shall be vested in its members acting by a majority (in number) but if the LLC agreement provides, the management of an LLC may be vested in one or more manager.

16.   Unless otherwise provided in the LLC agreement every member has the right to inspect from time to time true and full information regarding the state of the business and financial condition of the LLC and the name and last known business residence or mailing address of each manager (s 33).

17. By s 13 of the Law rules of equity and of common law applicable to Cayman Companies are where relevant, applicable to LLCs. By s 26 (4), subject to express provisions of an LLC agreement, a manager does not owe any duty (fiduciary or otherwise) to a LLC or any member other than a duty to act in good faith.

Where and why use an LLC?

18. The structure permits considerable flexibility allowing members to manage an LLC in any manner they deem appropriate. The LLC may be managed by its members (or selected members) or appoint a manager who need not be a member. The member or manager may delegate responsibilities to others. Subject to the LLC agreement neither the members nor any manager owe duties to the LLC or to each other, save as to act in good faith.

The LLC is not constrained by concepts of authorized and issued share capital and an individual member may grant a security interest over his interest.

An LLC may be suited to act as the general partner of a Cayman or onshore limited partnership or useful as a private investment vehicle.

As a fund vehicle, an LLC may allow for simplified fund administration and the tracking and calculation of an investor’s interest. A board of directors is not required.

Based on the Delaware LLC model, the LLC should provide some synergies with onshore vehicles and potential efficacies in respect to documentation, administration and governance.

Is this the end of the Cayman Exempt Company?

19. No. The LLC Law provides another option which will be attractive in certain scenarios. However, the additional flexibility of the LLC will sometimes be more apparent than real and of course the Articles of Association of the exempted company can and often are tailored adequately to fit the intended purpose. Some may be more comfortable with the traditional structure with which they are familiar and which has stood the test of time. The LLC government formation fee is somewhat higher than the exempted company with the minimum authorized share capital.

Roger L. Nelson

Nelson & Company
Attorneys-at-Law
#31 the Strand
46 Canal Point Drive
P.O. Box 2075
Grand Cayman  KY1-1105
CAYMAN ISLANDS

Tel: (345) 949-9710
Fax: (345) 945-2188

Email: rnelson@nellaw.com
General Enquiries: info@nellaw.com
Website:  www.nellaw.com