In 2017, The Cayman Islands introduced the ‘Foundation Company’ which is unique to the jurisdiction. A Foundation Company (‘FC’) 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,’ says Philippa-Lucy Robertson, Director, ZEDRA Cayman.
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?
FCs are appealing because they can be set up for various reasons, including:
• formation process the same as for a traditional exempted Cayman company;
• holding 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;
• philanthropic ventures;
• FCs can be attractive alternatives to trusts, especially for (U)HNW clients based in civil law jurisdictions given that the vehicle allows for several features which are applicable for succession planning and asset protection;
• as an “orphan” entity which holds the management shares of investment funds or in structured commercial transactions;
• 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
• structuring blockchain transactions and ventures.
What are the benefits?
Given the flexibility of FCs, they are an attractive vehicle for many reasons:
• the FC is a legal entity with existing corporate and trust jurisprudence;
• the FC has limited liability;
• the purpose of the FC 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;
• familiar to civil law practitioners, clients and tax authorities.
Uptake of Foundation Companies and ZEDRA’s role
‘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,’ adds Eduardo D’Angelo P Silva, Director, Zedra Cayman.
ZEDRA Cayman regularly incorporates FCs on behalf of international clients and their advisors. In addition, we also provide:
• Registered Office;
• Secretary (a required appointment of an FC responsible for performing and recording all anti-money laundering investigation on assets held in the FC);
• Supervisor (not required but a party who has rights of enforcements against the Directors to enforce the FC’s constitution and by-laws);
• Qualified professionals to be appointed director(s) and AML officers.