The Cayman Islands Foundation Companies regime came into force on Oct. 19 following publication of the new law and regulations in the official gazettes.
Foundation companies are a special type of company that combines elements of trusts and of companies in one vehicle. The new company form can be created for commercial, charitable, philanthropic or private purposes.
“It is anticipated that this new Cayman Islands business vehicle will give the financial services industry a competitive advantage through increased versatility in the international market. Similar to how a limited liability company, which is a variant of a company, is infused with functions of a partnership, a foundation company would also be a variant of a company,” Cayman Finance said in a notice to members.
Law firm Maples and Calder called foundation companies a new vehicle for Cayman’s trusts industry.
“The foundation company will be familiar to private client and commercial practitioners alike, while key modifications to the Companies Law model company mean that it will be a highly flexible vehicle for achieving a wide range of private client, family office and philanthropic objectives,” the law firm said in an article on its website.
The features of a foundation company are similar to other Cayman company types but, for example, provide the ability to have no shareholders or entrenched objectives. The main advantage of the foundation company is its flexibility in terms of objectives, management or structure, which allow it to be adapted to the founder’s specific circumstances.
An optional model memorandum outlines foundation companies can act as a holding or investment company or provide financial assistance or benefits to beneficiaries.
Henry Mander, partner at Harneys, said in a legal update on the law firm’s website that it is anticipated that foundation companies will have a wide range of uses “such as special purpose vehicles in finance transactions, as charities, protectors or enforcers (in relation to other trusts or fiduciary structures), as mechanisms within private trust company structures, as succession planning vehicles and for any purpose for which a trust is currently used.”
The foundation company has the typical advantages of a company and is also subject to long-established case law on companies.
The company form also has certain advantages over the trust, over the usual not-for-profit company and over the foundation models that were introduced in other offshore centers, Antony Duckworth, senior partner at Collas Crill said in a client notice.
Compared with a trust, a foundation company does not have a trustee and its directors owe duties to the company and not the beneficiaries.
“With a trust there may well be uncertainty about how the courts of some foreign countries would treat the trust and the trustee; but nearly all countries have the concept of a company, so the risk of adverse treatment is much less,” Mr. Duckworth said.
He added that Cayman did not follow the foundation regime in other offshore centers which emulated the civil law foundation. However, these types of foundations are restricted in terms of their activities and face more litigation risk. In addition, foreign courts and tax authorities may not accept the statutory proposition that the foundation is not a trust, Mr. Duckworth said.