Cayman Islands Exempted Limited Duration Companies
From Conyers Dill & Pearman
Foreword
This memorandum has been prepared for the assistance of those who are considering the formation of companies in the Cayman Islands. It deals in broad terms with the requirements of Cayman law for the establishment and operation of such entities. It is not intended to be exhaustive but merely to provide brief details and information which we hope will be of use to our clients. We recommend that our clients and prospective clients seek legal advice in the Cayman Islands on their specific proposals before taking steps to implement them.
Before proceeding with the incorporation of a company in the Cayman Islands, persons are advised to consult their tax, legal and other professional advisers in their respective jurisdictions.
This memorandum has been prepared on the basis of the law and practice as at the date referred to below.
Persons considering establishing companies to carry on insurance or mutual fund business should request separate memoranda prepared by this Firm on these topics.
Conyers Dill & Pearman
1. INTRODUCTION
The principal statute governing the formation and operation of a Cayman Islands company is the Companies Law (the “Law”). Pursuant to the Law, any one or more persons may, by subscribing their names to a Memorandum of Association and complying with the requirements in respect of registration, form an incorporated company, with or without limited liability. There are three types of companies which are commonly registered in the Cayman Islands: Ordinary Resident Companies, Exempted Companies and Exempted Limited Duration Companies. The focus of this memorandum is on the Exempted Limited Duration Company (“LDC”).
2. CHARACTERISTICS OF A LIMITED DURATION COMPANY
As only exempted companies may register as limited duration companies, the LDC shares many features in common with exempted companies (for further information on exempted companies, please refer to our separate brochure), namely:
The company is ‘created’ by filing a Memorandum of Association and on incorporation the relationship between the company, its director(s) and its member(s) is regulated by the company’s Articles of Association;
The company is not entitled to trade within the Cayman Islands with any person except in furtherance of business carried on outside the Cayman Islands;
The company must maintain a registered office in the Cayman Islands; and
Shares may be negotiable or nonnegotiable, issued at a premium over par value, or may be without nominal or par value. Bearer and fractional shares may also be issued. If bearer shares are to be issued, they must be held by an authorised custodian in accordance with the Law.
In addition, the LDC has several characteristics that clearly differentiate it from an exempted company:
The Memorandum of Association of the LDC must limit the life of the company to a period not exceeding 30 years, on the expiry of which period the company is deemed to have commenced windingup;
The company name must include the words “Limited Duration Company” or the abbreviation “LDC”; and
It must at all times have no fewer than two members.
3. INCORPORATION OF A LIMITED DURATION COMPANY
An application to be registered as an LDC may be made at the same time as the application for incorporation as an exempted company; or at the time of re registration of an ordinary nonresident company as an exempted company; or by way of an application for continuation into the Cayman Islands as an exempted company.
If the proposed company is to carry on a regulated activity, such as trust or insurance business, the appropriate licence may also be required.
4. OPERATION OF A LIMITED DURATION COMPANY
During its life span, the LDC operates much in the same way as any other exempted company. A board of directors may be appointed and may meet to conduct the day today business. However, unlike most other exempted companies, the Articles of Association of an LDC may provide that the management of the company is vested in the members either per capita or in proportion to their share or interest in the company, or in some other manner. In these circumstances, the members of the company are also to be regarded as the directors and if permitted by the Articles of Association they may delegate their responsibilities to other parties (e.g. a properly appointed board of directors).
5. WINDING UP OF A LIMITED DURATION COMPANY
Special provisions of the Law govern the circumstances in which an LDC is subject to voluntary winding up and dissolution. Broadly, an LDC is to be taken as having commenced voluntary winding up and dissolution:
when the period fixed for the duration of the company expires; where the Memorandum or Articles of Association so provides: on the termination of any period; or on the happening of any event;
if the members of the company pass a special resolution that the company be wound up voluntarily; or
subject to anything in the Memorandum or Articles of Association to the contrary, on the expiry of a period of ninety days starting on:
the death, insanity, bankruptcy, dissolution, withdrawal, retirement or resignation of a member of the company;
the redemption, repurchase or cancellation of all the shares of a member of the company;
the occurrence of any event which, under the Memorandum or Articles of Association, terminates the membership of a member of the company.
6. DE-REGISTERING
An exempted company may apply to deregister as an LDC upon making the appropriate amendments to its name, its Memorandum and Articles of Association and paying the appropriate fee.
This publication is not a substitute for legal advice nor is it a legal opinion. It deals in broad terms only and is intended merely to provide a brief overview and give general information.
About Conyers Dill & Pearman
Founded in 1928, Conyers Dill & Pearman is an international law firm advising on the laws of Bermuda, the British Virgin Islands, the Cayman Islands and Mauritius. With a global network that includes 140 lawyers spanning eight offices worldwide, Conyers provides responsive, sophisticated, solutiondriven legal advice to clients seeking specialised expertise on corporate and commercial, litigation, restructuring and insolvency, and trust and private client matters. Conyers is affiliated with the Codan group of companies, which provide a range of trust, corporate, secretarial, accounting and management services.
www.conyersdill.com
