Nowadays, lending and financial markets in the Cayman Islands are experiencing rapid growth. High creditworthiness and low risk make the market particularly attractive to international lenders.
If you need legal advice on financing funds in the Cayman Islands, we suggest that you first read this material and get useful background information.
Organizational and legal types of enterprises on the island of Cayman
The establishment of the fund in the Cayman Islands promises good prospects, especially for businesses from North America. And for entrepreneurs who want to get a Cayman Islands direct investment fund manager's license, it will be expedient to register an exempt limited partnership (ELP) in the Cayman Islands as a priority action.
In this jurisdiction, the interaction with the private sector has been developed and, as a result, a limited liability company Cayman LLC has been set up, which is the analog of Delaware LLC.
Successful public-private partnerships are just one of the factors contributing to the Cayman’s top credit and financing markets.
Other factors include:
- the growing convergence of hedge funds and the direct investment sector, as more and more fund managers use both products on the same platform;
- the use of English common law in Cayman Islands law, supplemented, if necessary, by local law, to ensure that Cayman Islands funds are recognized as international funds.
You will receive more details on the types of businesses and their financing during a legal consultation on the loan market regulation on the island of Cayman.
Ensuring capital rights
A direct investment fund may be established in the Cayman Islands in accordance with the Limited Partnerships Act, as amended (the ELP Act).
Cayman LLC registration is governed by the Limited Liability Companies Act, and is a hybrid form that combines some of the characteristics of a liberated company and ELP.
The ELP reflects a contractual agreement between the partners, where the general partner has certain powers over the business and its assets. The rights and property of ELP are trusted by the general partner.
You can order legal advice on financing an investment project in the Cayman Islands from our staff for more information on ELP.
If you intend to obtain a Cayman LLC manager license, please note that you will be responsible for the property and assets on your behalf.
ELP's limited partners usually agree to reimburse the fund upon request of the general partner. This contractual obligation of the limited partner to finance its capital and the right of the general partner to request unsecured capital are the basis of the fund lending mechanism.
If the borrower is Cayman LLC, the legal ownership of Uncalled Capital and Capital Call Rights belong to Cayman LLC itself. The Cayman LLC executive is authorized to request unsecured capital and receive capital contributions from participants.
Legal consultation on investment regulation in the Cayman Islands will help you better understand the current issue.
Beneficial ownership regime
Cayman LLC is required to maintain beneficial ownership registries in accordance with the actual beneficial ownership regime. As a result, such companies must identify individuals who qualify as “beneficial owners” (intermediate holding companies through which beneficial owners exercise supervision over the company).
IQ Decision UK services include consultations on the beneficial ownership regulation in the Cayman Islands.
You will receive more detailed information from our specialists by ordering legal advice on the identification of beneficial ownership in relation to legal entities.
The potential significance of the beneficial ownership regime for lenders when conducting a fund financing transaction in the Cayman Islands lies in the legal remedy available to the company in the event the shareholder fails to comply with the request for information on beneficial ownership. If the company does not receive such information within one month after the request, it may issue a “notice of restrictions” in relation to the respective share owned by the shareholder.
Until such notice is withdrawn by the company or terminated by the court decision, any transfer or agreement on the transfer of interest is void, no rights can be exercised with respect to interest, no shares can be issued, no payment can be made by the company with respect to interest. In addition, except for the liquidation cases, the agreement on the transfer of the right to issue shares will be invalid.
You can request legal advice on fundraising for funds in the Cayman Islands from our qualified employees.
Economic aspect
Last January, in the Caymans, the “Law on International Tax Cooperation” was passed, which obliges certain organizations to have “sufficient maintenance” on the island. Administrative fines will be applied to them for non-compliance with legal requirements.
The law is relevant for those who plan:
- register an exempted company in the Caymans;
- establish an LLC in the Cayman Islands;
- start a limited liability partnership;
- register a foreign subsidiary in the Caymans.
Final word
Despite the uncertainty of the global market, the outlook for fund finance over the next few years is very optimistic, and the Cayman Islands will continue to be the preferred option for lenders willing to offer attractive and diverse financing options.
IQ Decision UK experts provide legal advice on transactions for fund financing in the Cayman Islands.
