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Cayman Funds 2016

CAYMAN FUNDS | 2016 51 In recent months, we have been working with the Cayman Islands government and industry participants on the introduction of a Cayman Islands limited liability company (LLC), culminating in the publication of the Limited Liability Companies Bill in the Cayman Islands Gazette in December 2015. After the bill is enacted later this year, fund managers will benefit from the availability of this new fund vehicle alongside Cayman Islands exempted companies and exempted limited partnerships, further strengthening the Cayman Islands’ position as the leading offshore funds domicile. DIRECTORS’ CDAAMTAPBBAESLELS Shutterstock / Inara Prusakova The purpose of this article is to provide a high level overview of Cayman LLCs by addressing the following questions: 1. What are the key features of a Cayman LLC and why are people referring to it as a ‘hybrid vehicle’? 2. Why use a Cayman LLC in a fund structure or otherwise? 3. What are the key advantages and disadvantages of a Cayman LLC? Key features A Cayman Islands LLC combines some of the features and characteristics of a Cayman Islands exempted company with those of a Cayman Islands exempted limited partnership. As such, it is considered a ‘hybrid vehicle’. Part of the rationale for introducing a hybrid vehicle alongside the ever popular Cayman Islands exempted company and Cayman Islands exempted limited partnership, is to offer a vehicle that has a separate legal personality and limited liability of members (like an exempted company) but with no share capital (like an exempted limited partnership). In situations where a closed-ended fund requires a separate legal personality, for example, a Cayman Islands LLC may become the preferred vehicle in place of a Cayman Islands exempted company, by virtue of its hybrid nature providing for a separate legal personality but without the constraints of having share capital (discussed further below). The key features of a Cayman LLC include the following: • A body corporate with separate legal personality—like a company (and unlike an exempted limited partnership which acts by its general partner), the LLC will have capacity to enter into legal arrangements and to hold assets in its own name; • No share capital—members will make contributions to the LLC in a similar way to the exempted limited partnership’s capital contribution model; • Limited liability of members—the liability of members will be limited to the amount of capital contributions that they agree to make under the LLC agreement; • No separate board of directors or general partner—the management of the LLC will vest in its members or in managers if so agreed in the LLC agreement; • It may be formed for any lawful business, purpose or activity and members can agree among themselves the internal workings of the Cayman LLC—matters such as voting, economic rights and other arrangements regarding the members of the LLC may be set out in the LLC agreement; and • Managers of an LLC owe no fiduciary or other duties to the LLC or any member unless otherwise stated in the LLC agreement other than the duty to act in good faith—unlike in the case of directors of an exempted company or the general partner of an exempted limited partnership, even this duty may be restricted (or, of course, enlarged) in the LLC agreement. A Cayman LLC is therefore similar in many ways to a Delaware LLC. Indeed, the Limited Liability Companies Bill 2015 was based in part upon the Delaware Limited Liability Companies Act. Uses The hybrid nature and versatility of the Cayman Islands LLC, together with the familiarity of the Delaware LLC on which it was based, is expected to result in Cayman Islands LLCs being used in a variety of fund and non-fund structures. By way of example, we expect Cayman Islands LLCs to be used as follows:


Cayman Funds 2016
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