Cayman Islands lawmakers have approved a Delaware-style limited liability company arrangement as a new type of business vehicle for the local financial services industry.
Financial Services Minister Wayne Panton said the bill has long been sought by the industry and will make Cayman the first Caribbean overseas territory to implement a limited liability company, or LLC, arrangement.
“It is certainly a very exciting development for the financial services industry,” Mr. Panton told Legislative Assembly members last week. “In five years, this legislation … will be viewed as an iconic product in the Cayman Islands.”
The Limited Liability Companies Law will “complement,” not replace, existing Cayman Islands business vehicles, he said. The designation allows the LLC firm to use the quicker, “more flexible” accounting rules of a partnership but provide a legal designation of an entity as a corporation. It is essentially a mix of Cayman’s current rules for an exempted company and an exempted limited partnership.
A Cayman Islands LLC can be formed for any “lawful business purpose” and requires at least one member of the “corporation” to be registered with the Cayman Islands Monetary Authority, Mr. Panton said.
“Importantly, with respect to the naming convention, the Limited Liability Companies Bill has been developed to describe an LLC without reference to the word ‘exempted’ to avoid undue criticism from certain groups in the international community who have an anti-Cayman Islands or anti-IFC [international financial center] agenda,” Mr. Panton said.
The bill passed unanimously Wednesday.
A number of other financial services industry-related bills were approved last week by lawmakers.
Changes to the Special Economic Zones Law – which allow for the creation of special corporations that can provide their services internationally, but not within Cayman – addressed functions of zone entities and the operations of the board that oversees the special economic zone companies.
The changes set out requirements of the board in conducting due diligence on directors of special economic zone companies. In doing so, the board can call any person to attend a meeting of the authority.
Another requirement forces a company that “switches” to the special economic zone to de-register its work permits. Permit holders must leave the islands for at least 30 days prior to re-registering the permits.
Minister Panton said this would “limit the ability of entities operating within the domestic economy to take advantage of the special economic zone.”
Economic zone work permit fees are far less expensive than for companies conducting business within Cayman, in most cases. The changes also removed two senior civil servants from membership on the Special Economic Zone board.
A change to the Tax Information Authority Law sets out administrative penalties for individuals or corporations who do not exchange information as required under the legislation.
The maximum penalty for non-compliance with the law or being in breach of reporting requirements in the regulations is $50,000.
A change to the Companies Law abolishes the existence of bearer shares in Cayman. A bearer share is a share in a company’s capital which is registered by a certificate but which does not record the owner’s name.
A 2012 Financial Action Task Force recommended that Cayman should take action to “prevent the misuse of bearer shares.” Since that time, Mr. Panton said Cayman has only allowed a company to issue bearer shares if the custodian of those shares is named in the company register.