What is a Cayman Foundation Company?
28 January 2021
In 2017, The Cayman Islands introduced the ‘Foundation Company’ which is unique to the jurisdiction. ZEDRA’s Philippa-Lucy Roberston answers the question ‘What is a Cayman Foundation Company’?
A Foundation Company has features and flexibility that have been designed to allow a company, retaining separate legal personality and limited liability, to function like a civil law foundation or common law trust.
Why did Cayman introduce Foundation Companies?
Foundations have been popular structures for many years, especially in civil law jurisdictions, where they have been used similarly to common law trusts.
Foundations are well-understood structures from a legal perspective, and the fact that they can effectively ‘bridge’ common and civil law make them particularly attractive. In the past few years, many common law jurisdictions like the Isle of Man and the Channel Islands have moved to create legal structures that emulate civil law foundations, in a bid to remain competitive on the world stage. Cayman saw an opportunity to do the same and the Foundation Companies Law was enacted to this end, back in 2017.
After considering the approach of other jurisdictions and the concerns of practitioners arising from the lack of applicable jurisprudence (normally essential to grant comfort as to court treatment in the event of a dispute), the Cayman Islands determined that it would be preferable to modify the well-known and established Cayman company, rather than create new laws and rules for which is could take years for the courts to establish jurisprudence.
When the Foundation Companies Law was enacted, it was thus essentially a modification of certain parts of Cayman Islands’ Companies Law rather than new legislation, modifying only certain aspects specific to the Foundation Company structure itself.
Why use a Cayman Foundation Company?
Cayman Foundation Companies are appealing because they can be set up for various reasons:
- The formation process is the same as for a traditional exempted Cayman company;
- They can be used to hold shares in a private trust company to be used as a protector of enforcer of a trust or as a special purpose vehicle in financial or commercial transactions;
- They are used for philanthropic ventures;
- Cayman Foundation Companies can be attractive alternatives to trusts, especially for ultra-high net worth or high net worth individuals based in civil law jurisdictions, given that the vehicle allows for several features which are applicable for succession planning and asset protection;
- They can be used as an “orphan” entity which holds the management shares of investment funds or in structured commercial transactions;
- They can also be used as part of a Family Office structure, directly to hold assets or as the top-holding entity, contracting with service providers, suppliers and staff members; and
- For structuring blockchain transactions and ventures.
What are the added benefits?
Given the flexibility of Cayman Foundation Companies, they are an attractive vehicle for many reasons:
- The Foundation Company is a legal entity with existing corporate and trust jurisprudence;
- It has limited liability;
- The purpose of the Cayman Foundation Company can be hybrid and allow a philanthropic element;
- There is no accountability to beneficiaries or potential beneficiaries but rather to the foundation itself;
- By-laws have stronger standing than Letter of Wishes as can be legally enforced;
- They are familiar to civil law practitioners, clients and tax authorities.
Uptake of Foundation Companies
Cayman Foundation Companies offer some fantastic benefits. They are straightforward from a legal perspective and easy to understand, even in jurisdictions that may not be familiar with trusts, although the two types of entity can be very similar in terms of their application.
Cayman has been smart with their introduction, so there’s already an abundance of jurisprudence, giving clients and advisors peace of mind. Foundation Companies offer long-term flexibility and privacy in a first-class jurisdiction with an excellent reputation and compliance framework.
As a result of Foundation Companies’ benefits, we’ve seen significant interest from various parties, looking to use the vehicles for a variety of reasons.
How ZEDRA can help
ZEDRA regularly incorporates Cayman Foundation Companies on behalf of international clients and their advisers. In addition, we also provide:
- Registered Office services;
- Corporate Secretary services (a required appointment of a Foundation Company who is responsible for performing and recording all anti-money laundering investigation on assets held in the Foundation Company);
- Act as Supervisor (not required but a party who has rights of enforcements against the Directors to enforce the Foundation Company’s constitution and by-laws);
- Qualified professionals to be appointed Director and Anti-Money Laundering Officers.
For more information or to discuss whether a Cayman Foundation Company might be right for your needs, please contact Philippa-Lucy Robertson or Eduardo D’Angelo P Silva.