Exempted Limited Partnership Law soon to be revamped

The Cayman Islands Legislative Assembly will soon consider revamping the country’s Exempted Limited Partnership Law, repealing the current law with regard to those partnerships registered in the Cayman Islands.  

Exempted limited partnerships can be formed for any “lawful purpose,” provided the entity does business locally. Limited partnership arrangements were originally formed to allow investors in an entity to proceed with those investments with limited personal liability.  

Introduced in the revised legislation, which could be considered by the assembly as early as this week, is the ability for entities to transfer an exempted limited partnership out of the jurisdiction, similar to what already occurs with Cayman Islands companies.  

“This proposal will enable an [exempted limited partnership] to de-register in the Cayman Islands and re-register elsewhere,” Maples and Calder law firm partner Nicholas Butcher said. “Companies have been able to do this for many years and the change in the law will put [exempted limited partnerships] and companies on the same footing. These flexibilities are important to allow managers of and investors in companies and partnerships to react to business requirements and move between jurisdictions if the need arises.  

“[Last year] saw a record number of [exempted limited partnerships] registered in the Cayman Islands. This and the other proposed changes to the law will help maintain Cayman as an attractive and versatile jurisdiction in which to establish and operate partnerships.” 

Another change proposes a “safe harbor” for members of boards and committees involved in the operation of exempted limited partnerships.  

Mr. Butcher explains, “A limited partner of an [exempted limited partnership] is prohibited from taking part in the management or conduct of the business of the [partnership] and, if it does, it may lose the protection of limited liability. The law sets out circumstances, ‘safe harbors,’ in which a limited partner can carry out certain actions with respect to the [exempted limited partnership] which are deemed not to amount to taking part in the business.  

“This proposal will expressly extend the safe harbors to cover a limited partner serving on boards or committees relating to the [partnership]. This will help limited partners protect their investment without risking the loss of limited liability.” 

The Cayman Islands registry recorded the highest number of newly formed companies in the first 11 months of 2013 in five years, just prior to the global financial recession.  

Through November 2013, some 8,770 new companies were registered – a 6.2 percent jump over the same period the previous year. Registrations were expected to exceed the 2012 total of 8,971 and reach the highest number of new formations since 2008 (11,861). Annual company registrations peaked in 2007 at 14,240. 

The total number of active companies in 2013 was expected to exceed the previous high of 93,693 in 2008.  

Appleby reported that across offshore jurisdictions, there were 38,416 new incorporations in the first six months of this year, and the overall number of active companies listed on offshore registers is stabilizing. Within most offshore locations, the number of companies listed on the local register has increased since the end of 2012.  

The number of new incorporations across the entire offshore region has fallen slightly compared to the previous six-month period, but as the number of firms ceasing to trade has also dropped, this has allowed most registries to continue to grow. Like Cayman, many jurisdictions are approaching, or have even surpassed, their pre-recession peaks.