News: Investment attractiveness of the Cayman islands: establishment of the fund

Today more than half of investment funds from around the world are registered on the Cayman Islands. And if you are an investor capable of developing a progressive development plan for the fund (or just about to become one), we recommend you to carefully study the specifics of opening your commercial organization on the Cayman islands.

The registration procedure is reduced to an elementary verification of the identity, as well as professional qualifications and characteristics of each founder. A package of relevant documents is also subject to coordination.

Offshore mutual investment funds, as a rule, have the form of limited liability companies. The foregoing saves the cost of establishing and managing the fund. The tax burden on the fund at the same time is reduced to zero (the fund receives premium income from placing or investing funds of depositors).

But at the same time, investors can not enjoy tax benefits, being tax residents of their countries of residence. Therefore, having planned placement of funds in such investment formations ("hedge funds"), it is necessary to initially examine the principles of subsequent taxation.

On the Cayman islands, so-called "umbrella funds" are formed. The conductors of investment flows there are subsidiaries, established primarily in low-tax jurisdictions.

Fund on the Cayman Islands: structure; exempt company, non-resident status of the fund

The foundation of the mutual investment fund is one or two companies. They are created in a form that meets the objectives of investors and complies with the legislation of the country of registration.

The Cayman islands are open to public and private funds, established on the basis of exempt companies. These can be partnerships and limited liability companies or unit trusts. Companies are called exempt ones, since they have the status of non-resident (offshore) companies.

Such organizational and legal forms are limited only in carrying out transactions with residents of the Cayman Islands. Other Caiman offshores are allowed to cooperate with the fund. And the foregoing does not affect its non-resident status.

Funds on the Cayman islands. Classification

We offer a classification, the main principle of which is the degree or extent of regulation of the organization and activities of the fund. The Cayman Islands’ law on mutual funds contains a system of requirements. In accordance with it, investment funds can be:

• exempted from registration;
• registered in the form of administered structures;
• registered in the form of regulated structures;
• subject to licensing.

In addition, there is a fifth type of funds which activities do not fall under the aforementioned Law.

Thus, such types of funds on the Cayman Islands are distinguished:

1. Exempt.
2. Regulated.
3. Administered.
4. Subject to licensing.
5. Excluded.

What requirements must be met for the establishment of a regulated fund?

The requirements set forth in the Law are conditionally divided into two groups.

1. Requirements to the founder. Among them, there are the following:

• Coordination with the Cayman Islands Monetary Authority (CIMA) of the content of the memorandum regulating the offering of shares, and other documents defining the principles of the functioning of the fund. In accordance with the criteria and policies stated in the memorandum, the fund will further report on the work done.
• Documentary maintenance of interrelation between each structural unit of fund with the purpose to promote interaction of investors, shareholder, local regulator, auditor, operator and manager.
• Confirmation of the fact of hiring an auditor and an administrator on the Cayman islands (copies of letters are produced, in which consent to cooperation is stated).
• Disclosure of the corporate structure (certified copy of the registration certificate is provided).
• Confirmation of the fact of payment of the 1st annual fee, contribution of minimum authorized capital.
• Good reputation of the founder.

2. Requirements for the scheme of functioning and management of the fund:

• only persons with good reputation, specific experience and sufficient knowledge should administrate and manage;
• the management should be carried out by the operator (his functions are assigned to the board of directors or one director). There can be the owners of the fund or the persons appointed by them. Nominee service is available in the sphere of trust management of the fund.

Registration of the exempt fund on the Cayman Islands. Features and Advantages

The activities of the exempt funds do not need to be coordinated with the regulator. Therefore, this form of organization is the most popular. It is the least expensive not only in terms of the amount of investment, but also in terms of the time for registration. In this case, all the functions of the "hedge fund" are preserved.

And the foregoing retains the right of the fund to cooperate with exchanges, banking institutions and other financial institutions. In particular, banks require the funds to prove the legality of the company's actions, their compliance with the Law.

Exempt fund on the Cayman Islands: the requirements of the Law, the structure of legal entities and management

The law does not require registration of an exempt fund in the CIMA. At the same time, there are a number of requirements to fulfill:

• number of investors (i.e. founders) can not exceed 15 people;
• constituent documents should provide for the right of investors to appoint a fund operator or to terminate his powers by a majority of votes.

General requirements for other funds on the Cayman islands are also applicable to the exempt fund. Functions of monitoring the status of the fund's documents are performed by a Legal Council, who provides licensed fiduciary services.

If minimum structure of the fund is maintained, only the management company and the fund company can be included in it. In this case, the management company is an investor, and the investors themselves are shareholders. Investors themselves can act as directors of the fund or appoint a nominee director.

To conduct the procedure for assessing the net assets of the fund, appropriate structure should be involved. Other functions (including fund administration, interaction with depositors/investors, etc.) can be performed by the manager.

To confirm the status of the fund as exempt one, appropriate application is sent to the the CIMA by the operator.

Funds on the Cayman Islands with mandatory registration

1. Administered funds. The main feature is the requirement to appoint a resident administrator of the Cayman Islands with a special license. Minimum number of investors and minimum amount of investments are not determined by the law.
2. Regulated funds. In this case, minimum amount of the fund capital acquired by the investor should be $ 100,000 (or equivalent in another currency).
3. Funds subject to licensing. In such funds investment management is carried out by investors and managers who undergo the so-called due diligence procedure (verification of good faith).

Stages of formation of the fund

Registering a fund on the Cayman islands "on a turn-key basis" means passing through the following stages:

1. Collection of documents.
2. Coordination of constituent documents of persons involved in organization of the fund and contractual basis.
3. Approval of the package of documents in the CIMA (if required) or registration of the fund's structure.

It is now easy to establish a fund on the Cayman Islands. With our help, registering a fund on the Cayman Islands will be quick and efficient for you. Registration of funds is one of the main areas of our work.