Cayman Islands

Updated 27th August 2023*

This post is part of our research on DAO-friendly global jurisdictions.

Cayman Islands Foundation Companies Law

https://legislation.gov.ky/cms/images/LEGISLATION/PRINCIPAL/2017/2017-0029/FoundationCompaniesAct_Act 29 of 2017.pdf

Overview of Jurisdiction:

The Cayman Islands Foundation Companies Law came into effect in 2017, creating a new type of legal entity known as a foundation company. Here's an overview of this law:

1. Structure: A foundation company in the Cayman Islands is a hybrid between a company and a trust. It's designed to function like a company but can be used for purposes more traditionally associated with trusts.
2. Purpose: Foundation companies can be established for any legal purpose, whether charitable or non-charitable. This includes estate planning, wealth management, holding assets, and philanthropic activities.
3. Formation: To form a foundation company, specific documents must be filed with the Cayman Islands Registrar of Companies, including a constitution containing both a memorandum of association and articles of association. The company must have a secretary who is licensed to provide company management services in the Cayman Islands.
4. Governance: The governance structure includes a board of directors and may include other supervisory persons or committees. A foundation company must have at least one member and may have beneficiaries who do not have the right to manage the company but have rights to the assets.
5. Regulation: The law provides clear regulations regarding the operations, management, and dissolution of foundation companies. This includes rules relating to the fiduciary duties of directors, the rights of members and beneficiaries, and the appointment of auditors if needed.
6. Flexibility: Foundation companies in the Cayman Islands offer considerable flexibility in terms of their structure, purpose, and governance. They can be tailored to the specific needs and objectives of the parties involved.
7. Asset Protection: The law offers robust asset protection measures, making it difficult for third parties to access the assets of the foundation company.

The Foundation Companies Law in the Cayman Islands is an innovative legal development that offers a flexible and adaptable vehicle for a wide range of purposes. It's designed to meet the needs of international clients looking for solutions to complex legal, financial, and personal planning challenges. It blends features of both traditional corporate law and trust law to create a distinct legal entity that can be customized to various objectives and strategies.

Legal Frameworks:

Name: Must include the word "Foundation" in the name to distinguish it from other entities.

Registration: A detailed constitution, including a memorandum of association and articles of association, must be submitted to the Registrar of Companies.

Secretary: At least one secretary licensed in the Cayman Islands must be appointed.

Directors: A minimum number of directors is required, and specific qualifications may be outlined in the articles of association.

Members: At least one member is required, with the possibility of having both voting and non-voting members.

Purpose: The foundation company must be established for a legal purpose.

Legal Protections:

1. Asset Protection: The structure allows for robust protection against third-party claims on assets.
2. Regulatory Oversight: Governed by the Cayman Islands Companies Law, providing strict regulations and oversight.
3. Flexibility: Offers a flexible structure that can be tailored to suit various needs and objectives.
4. Fiduciary Duties: Directors are subject to certain fiduciary duties, offering additional protection and accountability.

Benefits and Challenges:

Certainly! Here's an analysis of the benefits and challenges related to the Cayman Islands Foundation Companies Law:

Benefits

1. Asset Protection: Foundation companies in the Cayman Islands offer robust protection for assets, making it difficult for third parties to make claims.
2. Flexibility: The structure of a foundation company allows for a wide range of customization, enabling it to fit various needs and objectives.
3. Legal Certainty: As a recognized legal entity, foundation companies operate under well-defined laws and regulations, providing a clear framework for governance and operation.
4. Tax Efficiency: Cayman Islands is known for its tax-neutral environment, which can make it an attractive jurisdiction for many investors.
5. Privacy: The law ensures a certain degree of confidentiality regarding the details of the members and officers, though this has been somewhat reduced due to global regulatory pressures.

Challenges

1. Compliance: The regulatory environment is strict, and adherence to all applicable laws, regulations, and reporting obligations can be cumbersome and expensive.
2. Reputational Risks: Operating in a jurisdiction known for tax advantages might lead to reputational risks, particularly in an era of increased transparency and global tax scrutiny.
3. Limited Local Presence Requirements: The requirement to appoint at least one local secretary and possibly other roles may pose challenges for foreign entities.
4. Global Regulatory Changes: International pressure to increase transparency and crack down on tax evasion can affect the rules and attractiveness of the jurisdiction.
5. Potential Conflicts with Other Jurisdictions: The laws governing foundation companies in the Cayman Islands may conflict with laws in other jurisdictions where the foundation company or its members may operate, leading to legal complexity.

In summary, the Cayman Islands Foundation Companies Law offers numerous advantages, particularly in terms of asset protection, flexibility, and potential tax efficiency. However, it also presents challenges, including compliance burdens, reputational risks, and potential legal conflicts with other jurisdictions.

Case Studies:

There is database but it is fee-based: https://online.ciregistry.gov.ky/

*Please note that the information in this post is for informational purposes only. It should not be construed as legal, tax, investment or other advice.*