04 RUNNING A BUSINESS

Running a Business

How to set up a business in Cayman, the legal formalities, trade and business licensing requirements, finding commercial office space, business services, computers and office supplies.

Establishing a Business

60 - Legal Formalities 60 - Funds & Investment Business 65 - Cayman Enterprise City 66

ESTABLISHING A BUSINESS

Photos courtesy of Rebecca Davidson, Kathleen Spencer, Guy Waller and Cayman Islands Chamber of Commerce

Trade & Business Licensing 68 - Incorporation/Registration 68 - Accounting & Auditing Firms 69 - Corporate Services 70 - Legal Services & Attorneys at Law 71 - Independent Directors - Cayman 73

Other Formalities - Work Permits - Employee Entitlements 75 75 75

Business Services 75

- Bookkeeping Services

76 - Business Insurance 76 - Office Supplies & Electronics 76 - Disaster Recovery Services 77 - Notary Public 78 - Translation Services 79

Setting Up An Office - Commercial Office Space 79 79

As a well-regulated, international financial centre with a worldclass infrastructure and political stability, the Cayman Islands offers an ideal environment for businesses to flourish. As a result, the business sector in Cayman is booming. Cayman’s regulatory framework has been continuously enhanced since 2020 to ensure that the Cayman Islands remains aligned with international standards and expectations. In July 2019 the Organisation for Economic Co-operation and Development (OECD) deemed Cayman’s tax regime as “not harmful” to other countries. With a well-developed common law system based on English law, and a local base of world-class corporate service providers, many international businesses have chosen to incorporate or register in Cayman. This chapter is your complete business set-up guide.

LEGAL FORMALITIES A business in Cayman can be run as a sole trader operation, a partnership or a company. It is also possible for a foreign company to register a branch in the Cayman Islands so as to be permitted to operate locally. The main distinction is that sole traders and general partners of an unregistered partnership firm have unlimited liability to third parties doing business with them, whereas the shareholders of a company typically have limited liability to third parties doing business with the company. The differences in, and suitability

of, various types of business structure are highly technical and are best discussed with a qualified Cayman Islands attorney.

Where two or more people want to go into business together, but wish to avoid all the formalities and expense of a company, a partnership structure may be more appropriate. Professional advisors, such as lawyers and accountants, have traditionally used a partnership structure for their business. A partnership generally has less legislative governance requirements than a company and can be more flexible in its treatments of the partners’ responsibility for liabilities and share of profits. Partners are also personally liable for any debts the business incurs, except for in the case of a registered Limited Liability Partnership, where the limited partners generally enjoy limited liability.

A company may be used where the owners and operators of the business wish to ensure limited liability for the debts of the business. Companies are commonly used for all sorts and sizes of businesses. There are more formalities and fees associated with forming and operating a company than with a partnership or sole trader business; however for many, the benefit of limited liability that is attached to a company offsets the extra effort and cost for the formation and operation of a company.

Foreign businesses that do not wish to establish a Cayman Islands subsidiary have the option of registering a branch operation in Cayman. The process to register a branch with the Cayman Registrar of Companies is straightforward. The branch, once registered, is required to maintain a local registered agent and pay annual fees to the Cayman Islands Government in order to maintain its registration.

If your aim is to operate a business within the Islands, it is likely that some form of local licensing will be needed. More details on the local licences procedure is given later in this section.

For a business which is at least 60% beneficially owned and controlled by one or more Caymanians, the acquisition of a Trade and Business (T&B) Licence is required. Where beneficial ownership and control does not meet this threshold, a Local Companies Control Law Licence (LCCL) may be required. The grant of an LCCL is a matter of discretion for the Trade and Business Licensing Board on the basis of various statutory criteria focusing on the protection of local interests and the benefits which a business would bring to the Islands, in addition to the extent to which Caymanian participation has been sought (which will ordinarily include a requirement for public advertising) and whether the proposed business will compete with any local Caymanian-owned businesses.

Businesses wishing to set up a physical presence in the Cayman Islands, but whose activities are carried out mainly outside the Islands, are in most cases exempt from the Local Companies Control Act (LCCL). As such, although they would require a T&B Licence in order to set up their local office and apply for work permits for any expatriate employees (as discussed further in the Immigration chapter), they would not require a LCCL, or to meet the 60% Caymanian ownership threshold.

It should be noted that banks, trust companies, company management firms and a number of other businesses in the financial sector are exempted from the T&B and LCCL regimes, although they would need to secure the necessary licences from the Cayman Islands Monetary Authority (CIMA). A different regulatory regime is available for businesses in certain approved categories seeking to set up within Cayman’s Special Economic Zone.

Sole Trader Due to immigration requirements and the rules governing the grant of a T&B Licence, in practice only a Caymanian will be able to operate a business as a sole trader if they are competing in the domestic market. A sole trader is able to start his/her business by simply offering services or goods in return for payment, with very few formalities depending upon the type of business. The sole trader can employ people to work in the business, but is personally responsible for all the liabilities of the business (e.g. rent, T&B Licence fees, salaries and benefits for employees) and is also the person who receives all the profits. As indicated above, however, a foreign national doing business internationally from a base within the Cayman Islands will generally only be able to obtain a licence and operate in and from within the Cayman Islands if they first incorporate a suitable Cayman Islands company and obtain the relevant licenses for that entity. There will be no requirement for such an entity to have any Caymanian participation.

Partnerships One form of partnership is where all the partners are ‘general’ partners and participate in the management of the business. In this structure, the only restrictions on sharing profits and withdrawing capital are those agreed between the partners. As well as general partnerships, the Partnership Act sets out the rules for ‘ordinary’ limited partnerships. However, limited partners must not participate in the management of the business and a limited partner’s right to share in the profits or withdraw capital is restricted. The Exempted Limited Partnership is another form of partnership which is specially designed to provide more flexibility to suit the needs of the financial industry in Cayman and is typically used for caring on business outside of Cayman. In all cases, you are advised to contact a specialist to determine the partnership arrangement most suitable for your needs.

In addition to the Exempted Limited Partnership, the Cayman Islands has recently passed legislation introducing Limited Liability Partnerships (LLP). The LLP is a partnership with a separate legal personality and limited liability for its limited partners and it is intended as an alternative to ordinary limited partnerships. It is generally the LLP, rather than an individual limited partners, who is liable for the debts. Moreover, limited partners enjoy limited liability and there

are no joint liabilities for acts or omissions of another partner, except for in certain circumstances. The LLP is designed for the conduct of business domestically, as well as for business overseas. It is anticipated that the LLP will be an attractive vehicle to professional services firms that have traditionally taken the form of ‘firm’ partnerships.

Companies & LLC A company that intends to conduct the majority of its business outside of the Cayman Islands would ordinarily register as an exempted company. The key elements of an exempted company are that it is not required to keep a register of members open for public inspection or hold an annual general meeting in Cayman, it is entitled to receive a tax-free guarantee from the Government of the Cayman Islands for up to 30 years, it can offer shares to the public in the Islands if listed on the Cayman Islands Stock Exchange (CSX), and finally it may issue shares without nominal or par value. The company is a corporate body with separate legal personality and is able to enter into contracts and own property as well as incur liabilities. A shareholder in a company, has a liability to the company, limited to the amount unpaid on the shares held by that shareholder and cannot be liable for the liabilities C of the company itself. The company may distribute profits to M shareholders by paying dividends and a shareholder can only get Y their capital investment in the company back by selling the shares CM they have or by the company following certain formalities under MY Cayman Islands law required to return capital to the shareholder. Company formation and operation is governed by the Companies CY Act and under common law rules in the Cayman Islands. CMY

The Cayman Islands also permits the formation and the K registration of Limited Liability Companies. A Limited Liability Company (LLC) is a unique vehicle that blends key features of a Cayman Islands Exempted Limited Partnership with those of a Cayman Islands exempted company.

Most notably, an LLC is not the typical company vehicle whereby the liability of shareholders is limited by shares or by guarantee, but instead operates by reference to members’ capital accounts and capital commitments, with freedom of contract among members determining the internal workings of the company similar to an Exempted Limited Partnership. Yet, unlike an Exempted Limited Partnership, a LLC is a corporate body with a separate legal personality and whose members enjoy limited liability. A LLC is therefore a hybrid between an exempted company and an Exempted Limited Partnership, developed to meet the demands of various global client bases that wish to operate a vehicle which offers the greatly increased flexibility of partnership capital accounting capability but within a corporate vehicle with separate legal personality.

This hybrid approach is useful in a variety of investment spaces (such as investment funds, joint ventures and holding vehicles for a variety of assets including ships) where some investors and

service providers find the share capital accounting structure of a company somewhat cumbersome for certain transactions.

Foundation Companies In 2017 the Cayman Islands enacted legislation for the formation and registration of foundation companies. Unlike the traditional company, a foundation company may have no shareholders and may entrench its objectives. Other key elements of a foundation company is that whomever the founder wants can be given rights, powers and duties (not just to existing members, directors or supervisors). A foundation company may also entrench the objectives of the company or specific provisions within the constitution and may have bylaws to govern the exercise of discretion by those who have duties or powers under the constitution. The by-laws do not have to be filed, and they do not affect a third party dealing in good faith with the foundation company.

As a relatively new type of company, that is free of the perceived drawbacks of a company or trust, the foundation company provides an attractive alternative in a range of wealth planning and commercial scenarios. Foundation companies will likely continue to open up a variety of interesting estate and other planning possibilities, including for commercial, philanthropic and other private purposes.

Cayman Islands Branches An overseas company which i) establishes a place of business; ii) commences carrying on business within the Cayman Islands (even ‘offshore’ business); or iii) proposes to own real estate situated in the Cayman Islands, must register as a ‘foreign company’ (essentially registering a branch) under Part IX of the Companies Act. A registered Cayman Islands branch will not have a separate legal personality from the main company headquartered overseas. In many cases, this is desirable for group operations which are required to maintain tax residency in a certain jurisdiction, but wish to have a Cayman Islands presence from which to conduct certain business of the group. In the case of a bank, trust company, insurance company, management company, mutual fund, mutual fund administrator or any entity carrying on securities investment business, a licence to conduct such business will be required from CIMA, notwithstanding that the business is actually conducted outside the Cayman Islands. A Cayman Islands branch is able to secure a T&B Licence and, if necessary, a LCCL Licence in order to comply with the necessary legal requirements to set up a physical presence in the Cayman Islands.

Intellectual Property Legislation The CI Government has in recent years modernised the country’s intellectual property laws in order to provide better protection of the rights of persons involved in creative and business endeavours. By improving copyright, trade mark, patent and design rights legislation, Government also has improved the local commerce framework.

Copyright protection has been significantly updated with the commencement of the Copyright (Cayman Islands) Order (2015), as amended. The categories of original creations that are protected in Cayman have been expanded to cover music, film, art, and other creative fields in every format – including digital.

The Trade Marks Act (2016) allows people and companies to locally register their brands and company logos. It also gives legal protection against piracy and infringement, allowing local and international companies to be confident in what they create in the Cayman Islands, while providing an incentive for local and international investors. The Patents Act (As Revised) continues to allow patent holders the ability to register their rights in the UK and extend those rights to the Cayman Islands.

The Design Rights Registration Act

(2016) allows design rights – the physical appearance of an industrial or handicraft item or a part of it – registered in the UK, to be extended to Cayman.

Funds & Investment Business Common fund vehicles used in the Cayman Islands to operate mutual and private funds include the Exempted Company, the Segregated Portfolio company, the unit trust and the exempted Limited Partnership. Limited Liability Companies may be established and may serve as the fund vehicle although they are more commonly used as holding vehicles or other vehicles within the fund structure. The Segregated Portfolio Company (SPC) is a single legal entity which enables the establishment of protected cells (known as segregated portfolios) providing statutory ringfencing of the assets and liabilities of each segregated portfolio. A Unit Trust is usually established by declaration of trust or under a trust deed by a licensed Cayman Islands trustee whereby investors’ interests are represented by trust units. The exempted limited partnership is established by a limited partnership agreement entered into by the general partner and one or more limited partners. This provides a second unincorporated vehicle and it can be formed as easily as the exempted company or the trust unit. Each type of vehicle can operate as an open-ended fund (where investors have the right to redeem their shares, units or interests at their own election), or as a closed-ended fund (where the right to withdraw shares, units or interests is made at the election of the directors, trustee or general partner, as the case may be). The investment funds industry is regulated and monitored by the Cayman Islands Monetary Authority (CIMA) through a number of pieces of legislation including the Mutual Funds Act, the Private Funds Act and Monetary Authority Act. An attorney can provide more information on structuring a fund in the Cayman Islands and can advise on the necessity for a licence/applicable regulation and assist in compliance with the formalities.

Fund Administration In addition, there are 77 administrators currently licenced in the Cayman Islands, of which 68 hold a full licence and 9 hold a restricted licence. Most of the world’s top administrators are licensed to carry on business in the jurisdiction. CIMA lists all registered fund administrators in the Cayman Islands.

In October 2020 the Cayman Islands were named ‘Best Private Equity Fund Domicile’ at the 2020 Private Equity Wire US Awards. It is commonly acknowledged that Cayman’s success as an investment funds jurisdiction is due to a perfect combination of factors: having a well-respected legal and judicial system based on English common law coupled with a track record of servicing the top global asset managers in the space; being in the right time zone to serve the US market which is a heavy user of the domicile; and it attracts some of the world’s best service providers

HSM Corporate Services Ltd. provides corporate services in the Cayman Islands. HSM’s corporate team aim to work with our clients to achieve their objectives within the parameters of the structures available under Cayman Islands law.

• Incorporation of companies and Formation of Limited Partnerships • Assisting in establishing bank accounts for corporate clients • Company searches • Corporate and Partnership filings • Legalisation, notarisation and apostilling documents • Re-domiciliation and transfer of companies • Voluntary Liquidations and Striking off of Companies

For further information, please contact:

Michele Bryan

Corporate Services Manager HSM Corporate Services Ltd. +1 345 815 7439 mbryan@hsmoffice.com

Choose the Experts. Choose HSM. +1 345 949 4766

68 Fort Street George Town PO Box 31726 Grand Cayman KY1-1207 Cayman Islands www.hsmoffice.com

who are experts in their field including fund accountants and auditors, fund attorneys, independent directors, fund administrators and trustees, all with over two decades of accumulated expertise. This familiarity and concentration of expertise inevitably makes the establishment and ongoing operation of investment funds in the Cayman Islands more efficient in terms of timing and costs than lessspecialised jurisdictions.

Setting up a Single Family Office The Cayman Islands are an increasingly appealing jurisdiction for the establishment and operation of single family offices. For more information on this topic please see page 42 in the Cayman a Global Financial Centre chapter.

Walkers (Cayman) 190 Elgin Avenue, George Town Tel: (345) 949 0100 Email: philip.paschalides@walkersglobal.com Walker’s private capital team is composed of selected specialists who advise on corporate, finance investment funds, trusts and estates and litigation matters. They work with highnet-worth individuals, family business, family offices, private banks and trust companies and their advisers to provide timely, customised advice across jurisdictions that address the particular sensitivities of private capital clients.

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Small Businesses Commerce in Cayman continues to receive support with the Government continuing to incentivise micro and small businesses by significantly discounting T&B Licensing fees. To be classified as a micro business, owners can only employ four additional employees and cannot exceed an annual gross revenue of CI$250,000. Small businesses cannot employ more than 12 employees nor exceed an annual gross revenue of CI$750,000. For business licensing information, please email: info@ dci.gov.ky, call (345) 945 0943 or visit www.dci.gov.ky. Cayman Islands Department of Commerce & Investment (DCI) The DCI is responsible for the grant and regulation of licensing for most businesses in the Cayman Islands. They also process all liquor and tobacco licences as well as cinema licences and film ratings. They ensure that business owners comply with Cayman’s legislative and regulatory framework for commerce, and ensure that trade and business operations conducted in the Cayman Islands adhere to local and global requirements. Visit www.dci.gov.ky.

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Cayman Enterprise City (CEC) The Cayman Islands Government enacted the Special Economic Zone (SEZ) Act in an effort to encourage further economic growth and attract additional international investment. Cayman Enterprise City (CEC) is an award-winning development project that consists of three special economic zones focused on attracting knowledge-based and technology-focused businesses to set up a physical presence in the Cayman Islands. The zones included within CEC are Cayman Tech City, Cayman Commodities & Derivatives City and Cayman Maritime & Aviation City. CEC enables businesses to easily and cost-effectively establish a genuine physical presence with staff and offices, to generate active business income in the Cayman Islands where there is no corporate, capital gains, sales or income tax. Cayman’s SEZ enables companies to take advantage of the Islands’ jurisdictional benefits, along with a series of appealing concessions granted by the Government. Cayman is an ideal business jurisdiction and is OECD white listed, meeting the highest anti-money laundering compliance requirements.

Concessions and Reasons to Relocate to CEC > 100% exempt from corporate, capital gains, sales and income tax in the Cayman Islands > 100% foreign ownership permitted > 100% exemption from import duties > Renewable five year work/residency visas granted within five days > Five year residency for employees and their

dependents > 4-6 week fast-track set-up of operations > Intellectual property owned offshore > Appropriate level government reporting > Strategic base with easy access to lucrative

North and Latin American markets > On NYC/EST time zone

Eligible Market Sectors CEC can accept companies and divisions of companies active in these key sectors: > Internet and Technology > Media and Marketing (including digital media, film and broadcasting) > Commodities and Derivatives > Biotechnology, Life Sciences and Green

Technology > Maritime Services and Aviation Services

Why Companies are Establishing in CEC: Global Tax Mitigation Companies are using CEC as part of their global structuring strategy, as it provides them with the opportunity to costeffectively establish a genuine physical presence offshore, which can significantly enhance their competitiveness in the global marketplace and enable them to generate a tax-exempt active business income in the Cayman Islands.

Work/Residency Visas for Staff CEC enables businesses to immediately relocate key staff from any country of origin to the Cayman Islands, particularly those that may not be able to get visas for the US or Canada. CEC companies can obtain five year work/residency visas for personnel within five working days.

Intellectual Property Intellectual Property can be held by a zone company and licensed internationally from this tax-neutral jurisdiction. Many CEC companies avail themselves of the benefit of establishing their IP offshore early, as part of their overall business strategy, in order to maximise the value of this key asset for the whole of the company’s life cycle, avoiding costly migration issues later.

Access to Global Markets Companies are setting up within CEC and utilising the zone as a catalyst to increase global growth from a tax-neutral location.

Set-Up Process CEC offers businesses very flexible packages which include fully serviced offices, use of the business centre facilities, the Trade Certificate to operate the business and the Zone Employment Certificates (work/ residency visas) for their staff. Set-up can be expedited within 4-6 weeks. CEC also provides offshore data-centre facilities through their strategic partner Brac Information Centre. For more information, email: info@caymanenterprisecity. com, call (345) 945 3722 or visit www. caymanenterprisecity.com.

TechCayman Similar to CEC, if you have an IT or Tech company which does business outside of Cayman, then you are eligible to move your company to TechCayman and then

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