Cayman has taken the blueprint from Delaware for the introduction of its new Limited Liability Company (LLC) legislation.
Combining the key features of a company and a partnership, when the new LLC vehicle becomes law, it will increase the structuring options for investment funds, meeting demand from US fund sponsors and promoters for an offshore vehicle, more closely aligned with their onshore corporate framework.
Cayman lawyers say that their US clients have been requesting this legislative development for some time to provide a better match with the Delaware limited liability company. However, this is not the first time that Cayman has modeled its laws on America’s tax haven, with the successful Cayman exempted limited partnership legislation also based on the equivalent and equally popular Delaware version.
“I expect the Cayman LLC to be popular and mostly with US based clients,” said Richard Addlestone, partner with Solomon Harris. “The Delaware LLC is a vehicle which is very familiar to the Americans and has a broad use from investment fund structures to family holding companies. It is probably long overdue for us to have in our stable something that equates to it. The launch by Cayman of this new vehicle affords clients more optionality in their structuring decisions and is to be commended as a positive and creative step.”
The Cayman LLC is a corporate body, which has a separate legal personality — just like the Cayman Islands exempted company — but instead of having share capital, it is limited by the capital accounts and financial commitments of its members. Additionally, the new LLC will be extremely flexible in terms of giving members the ability to decide the company’s internal workings for themselves, in similar fashion to the Cayman exempted limited partnership.
Addlestone said that historically, legal practitioners here have found it somewhat of a challenge to fully translate Delaware LLC concepts into the range of Cayman vehicles currently available.
“Employee incentive schemes for private equity managers, for example, designed with Delaware LLC characteristics in mind, do not easily fit within the framework of a Cayman exempted company,” Addlestone said. “With the passing of the LLC bill into law, Cayman will make available to US based clients a vehicle that will both be very familiar to them and which will better suit their business models.”
Maples and Calder said in a client update that while existing Cayman structuring vehicles, such as exempted companies, exempted limited partnerships and trusts, are likely to remain as popular as ever, the new LLC has followed requests from the investment funds industry for an additional structuring solution. For the funds industry in particular, the LLC will provide greater symmetry with onshore vehicles in onshore/offshore fund structures, Maples said, allowing greater ease and cost efficiency of fund administration and a better alignment of the rights of investors between the different vehicles in the structure.
Solomon Harris’ Addlestone said that although it is difficult to estimate what the take up will be of the new product will be, some instances had crossed his desk recently where a Cayman LLC would be required, including the re-domestication of a Delaware LLC to Cayman and re-registration here as a Cayman LLC.
“Additionally, as a Cayman LLC would be member managed and allow for partnership accounting and partnership characteristics to be incorporated into its make-up, there is interest in this type of vehicle from some onshore jurisdictions where partnerships and partnership type entities are given beneficial treatment under onshore tax rules,” Addlestone said, adding that he knows at least two cases where a conversion from an exempted company to a Cayman LLC is being mooted for just these reasons.
“In the investment funds context, the LLC may displace the Cayman exempted limited partnership and its biggest impact may be on the formation of Cayman private equity funds, where the Cayman ELP is usually the vehicle of choice,” he stated