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This article will be useful for entrepreneurs who intend to register a partnership in the Cayman Islands. Developing a business in a highly competitive market is a difficult task. Therefore, companies initiate partnerships to help each other with expertise and make money. Business partnerships have a lot of advantages: more favorable terms of cooperation and efficient communication, access to products that are closed to the rest of the market and flexible payment terms.

For partnerships to be effective and to benefit everyone, you need to understand the complexities that might stand in the way.

Here, we bring to your attention a summary of the general principles applicable to the formation, operation and termination of ELP in the Cayman Islands.

Why Caymans?

The most popular jurisdictions to set up a partnership or a fund are Luxembourg and the Cayman Islands. Moreover, Luxembourg is more often chosen for investment activities in Europe by connoisseurs of the Roman-Germanic legal system. And Caymans are preferred by fans of offshore and American currency. And since the Cayman Islands is a British-dependent territory, it inherits the English common law system, which is also a great advantage.

What is ELP?

This abbreviation stands for an exempt limited liability partnership. If you intend to create a partnership in the Caymans, it must be registered in strict accordance with the local ELP Act.

Cayman Exempt Company

An exempted company operates mainly outside the country of registration (offshore principle) and is often chosen as a qualified general partner of an ELP. The number of shareholders in such a company is unlimited, which allows you to attract many investors.

However, in practice there are some rules for the distribution of shares. Thus, an investment manager usually owns voting shares with the right to vote and without the right to participate in profits (voting non-participating management shares). Shares with the right to participate in the profits (participating shares) are transferred to a charitable trust or legal advisers. Non-voting participating shares are distributed among investors.

The company can issue different classes of shares to adapt to the needs of investors. As the company is not subject to taxation in the Cayman Islands (offshore principle), such a structure can accumulate income at the corporate level. To insure against changes in the law in the future, the company may receive a Tax Exemption Certificate, which confirms the exemption for up to 20 years from the date of receipt.

When a Partnership Cease Existence

When starting a business, it seems that everything will be perfect. But in practice, things can go wrong and you have to go out of business. Partners are human beings, and problems may arise with them, too. You may not get along or you may come across unscrupulous specialists. Therefore, be sure to think over and discuss this moment in advance - how you will distribute property, close the partnership and split.

The clause for the termination of the partnership should be envisaged in the partnership agreement - it’s a must! 

ELP in the Caymans may be terminated by liquidation or may be deregistered. Formal liquidation procedure is commonly applied when a partnership has attracted investors. If not, it can easily be deregistered and dissolved.

However, a partner or creditor may object to the deregistration. Within ten years, he can apply to the court to reinstate the organisation. Deletion from the register does not affect liability, if any. It remains and can be applied in the same way as if the partnership still exists.

Final word

You need to get well prepared for setting up a partnership in the Caymans. You must be legally savvy in the specifics of documentary interaction in each specific case. You need to be clear about facts and figures. Pay close attention to the numbers and enter into contracts only after being verified by a team of legal professionals. If this is your first time planning to work with a partner you don't know, you can also do a background check.

IQ Decision UK specialists provide comprehensive advice on the registration and operation of a partnership in the Cayman Islands. Reach out to us by filling out the feedback form below.