With the coming into force of the Foundation Companies Law in October 2017, a new type of company, the foundation company (the “Foundation”), was introduced in the Cayman Islands.
Cayman Foundations function like a foundation does in many civil law jurisdictions, but comes in the form and with the benefits of corporate status.
A Foundation brings a high level of flexibility for use, for example, as an alternative to a trust for succession planning and charitable/philanthropic purposes or asset protection; as a private trust company, to act as protector or enforcer or as special purpose “orphan” entity in finance and other transactions, such as for holding management shares of investment funds.
It also brings a good degree of confidentiality, as rights to information, such as reports and accounts, are limited to "interested persons" who are defined in the Law as any of its members or supervisors, someone with the right to be a member or supervisor or someone declared under the Foundation’s constitution to be an interested person
Any new or existing Cayman company may apply to the Registrar of Companies (Registrar) to be declared to be a Foundation Company provided that the prescribed requirements have been met.
As a company incorporated under the Companies Law, a Foundation is a body corporate with a legal personality distinct from its members and directors and will have capacity to hold property etc.
Formation of Foundation
Since Foundations will, in most cases, be bespoke in nature, there is unlikely to be a ‘one size fits all’ approach to the documentation required.
We therefore work in conjunction with several local independent law firms and can work with our clients to provide a tailored suite of documents to satisfy our clients’ requirements at a competitive cost.
As with other types of companies, there is a fee payable to the Registrar of Companies on formation and in each year of the existence of a foundation.
A Foundation's constitution may grant any person the right to become a member. It must have at least one member on incorporation but can cease to have members if its memorandum permits and it continues to have a ‘Supervisor’, being a person, other than a member, who has a right to attend and vote at general meetings. Once it ceases to have members, it cannot admit new members or issue shares unless its constitution allows it. The liability of its members will generally be limited by its memorandum.
Requirements for a company to be a Foundation Company
(a) it must be limited by shares or by guarantee, with or without share capital, but cannot pay dividends on its shares or redeem or re-purchase them;
(b) it must have a memorandum that:
(I) states that the company is a foundation company;
(ii) describes its objects;
(iii) provides, directly or by reference to its articles, for the disbursal of surplus assets on a winding up; and
(iv) prohibits dividends or other distributions of profits or assets to its members or proposed members as such;
(c) it must adopt articles; and
(d) it must have a Secretary, licensed to provide company management services in the Cayman Islands (such as IMS), and its registered office must be at its Secretary’s registered office. The Secretary must maintain records of its activities.
A Foundation’s management will generally be carried out by its directors. However, its constitution may give rights, powers and other duties to members, directors, supervisors, founders or others for the benefit of the Foundation, the power holder or for any other lawful purposes. The rights, powers or duties may, amongst other things, relate to:
admitting, appointing or removing members, supervisors and directors;
making and amending any bylaws;
the supervision of the Foundation's management and operations;
calling and attending at general meetings;
voting on resolutions;
altering the constitution; and
winding up and disposing of surplus assets.
A Foundation may have supervisors, which are persons, other than members, who under the foundation’s articles have a right to attend and vote at general meetings, whether or not the person has supervisory powers or duties.
In addition to the register of directors, members and charges that Cayman Islands companies are required to keep, a foundation company must keep at its registered office an up to date register of supervisors.
Contribution of Assets
A Foundation may not accept an asset contribution that is gratuitous or is in consideration of a share issue unless its Secretary has given the Foundation a notice that there appears to be no objection under regulatory laws to its acceptance. The secretary is under an obligation to maintain a full and proper record of the secretary's activities and enquiries made for giving notices in relation to the acceptance of assets.
Cayman Islands Tax Status
There is no direct taxation in the Cayman Islands and, if the objects of a Foundation are to be carried out mainly outside the Cayman Islands, application may be made to register the Foundation as an exempt company, making the Foundation company eligible for a tax exemption undertaking.
The "firewall" provisions of the Cayman Trusts Law are extended to Foundations, giving protection against claims in foreign courts to the transfer of assets to the Foundation.
We are required by law to "know our client" and we must therefore be familiar with the proposed activities of a company, and the beneficiaries and settlor (persons placing assets into the trust) of a trust, to be formed by us. We are also required to know the source of funds and source of wealth to be utilised by the proposed company and/or trust. We must also obtain certain information on proposed directors, officers and shareholders. We provide a simple application form at the outset, along with details of what information we require in order to get to ‘know our client’.