A business in the Cayman Islands can be run as a sole trader operation, a partnership or a limited company. It is also possible for a foreign company to register a branch in the Cayman Islands in order for the foreign company to operate locally.
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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 in order for the foreign company to operate locally.
The main distinction is that sole traders and general partners 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. Typically, small owner-operated businesses with few liabilities, might consider operating as a sole trader, often using a ‘trading as’ title such as Fred Smith (t.a. Fred’s Fantastic Fences). There are few formalities for formation and few annual fees. However, the sole trader is personally responsible for any debts the business incurs.
Where two or more people want to go into business together, but wish to avoid all the formalities and expense of a company, they would use a partnership structure. Professional advisors, such as lawyers and accountants, have traditionally used a partnership structure for their business. A partnership has less legislative governance 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.
A company will be used where the owners and operators of the business want to have limited liability for the debts of the business. Companies are very commonly used for all sorts of businesses, from one-man operations to multi-million dollar, multinational businesses. There are more formalities and fees associated with forming and operating a company, than with a partnership or sole trader business, but many people feel the limited liability a company affords is worth the extra effort and cost.
Foreign businesses that do not wish to establish a Cayman Islands subsidiary, do have the option of registering a branch operation in Cayman. The process to register a branch with the Cayman Registrar of Companies is straightforward and the branch, once registered, is required to maintain a local registered agent and pay annual fees to the Cayman Islands Government to maintain its registration.
If your aim is to operate a business on-Island, then depending on the nature of the ‘on-Island’ business to be conducted, some other form of local licensing will be needed. More details on the Local Licences procedure is given later in this section.
For a business, wholly or 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 is less than 60% by Caymanians, a Local Companies Control Law Licence (LCCL) may be required. The grant of an LCCL is a matter of discretion for the Trade & Business Licensing Board which will carefully consider, amongst other things, the benefit such business will bring to the Islands, 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 local Caymanian-owned businesses.
Businesses wishing to set up a physical presence in the Cayman Islands, whose activities are carried out mainly outside the Islands, are in most cases exempt from the Local Companies Control Law (LCCL). Therefore, although they would require a T&B Licence to set up their local office and secure work permits for any expatriate employees (as discussed further in the Immigration chapter), they would not require a LCCL, or 60% ownership by a Caymanian Status holder.
In April 2017, Cayman enacted legislation for the formation and registration of Foundation Companies. These companies allow for there being no shareholders and their objectives being entrenched. Read more about Foundation Companies further in this section.
It should be noted that banks, trust companies, company management firms and a number of other businesses are exempted from requiring both a T&B Licence and LCCL, though they would need to secure any requisite licensing with 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.
Click here for a list of Corporate Service Providers who can assist with the legal formalities of setting up your business.
For more research and to review a checklist of what is required to set up a Trade and Business License see the Department of Commerce and Investments (DCI) checklist here.
To start the Trade and Business Licensing process yourself or to renew a trade and business license, see the Department of Commerce and Investments’ link to their online application and renewal portal.
Sole Traderkeyboard_arrow_right
Due to immigration requirements and the rules governing the grant of a T&B Licence, in practise, 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 without any formalities by simply offering services or goods in return for payment.
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 of employees) and is also the person who receives all the profits.
Read MorePartnershipskeyboard_arrow_right
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 Law 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.
Read MoreCompanies & LLCkeyboard_arrow_right
Foreign businesses that do not wish to establish a Cayman Islands subsidiary, do have the option of registering a branch operation in Cayman. The process to register a branch with the Cayman Registrar of Companies is straightforward and the branch, once registered, is required to maintain a local registered agent and pay annual fees to the Cayman Islands Government to maintain its registration.
Foundation Companieskeyboard_arrow_right
The Cayman Islands government is constantly creating new legislation and financial products to support its thriving business community. In April 2017, the government 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.
Public Beneficial Ownership Registries
On May 1st, 2018, the UK Government issued an amendment requiring the 14 British Overseas Territories, including the Cayman Islands, to introduce public registers of beneficial ownership by the end of 2020. Failing to do so by December 31st, 2020 and the UK government will issue an order in council forcing the overseas territories to publicise the real owners of all registered companies.
A public register, as defined by the amendment, is comparable to the UK’s registrar of companies – a system which registers companies’ information and makes it available to the public. Currently public registers are not recognized as a global standard, and the UK is the only country in the world which operates under one.
In response to this decision, Britain’s Overseas Territories have been vocal about the discrimination felt against overseas territories in favour of U.K. Crown Territories – of which the amendment excluded.
A centralized beneficial ownership register was already employed for the Cayman Islands, which provides British law enforcement and tax authorities with ownership information on Cayman registered companies, when requested. The difference between the system already in place and the UK government’s amendment is that this information will now be made available to the general public.
The purpose behind the introduction of a public register of beneficial ownership is for greater financial transparency in the campaign against money laundering and the international trafficking of corrupt or ‘dirty’ money. However the Cayman Islands has long been transparent in its operations as a financial institution, and information pertaining to beneficial ownership has been made available to the British legal, regulatory and tax authorities for more than 15 years. In the face of this, such a move by the UK Government to enforce publication of this information, suggests that Cayman’s high levels of continual cooperation, fixed in their laws and international agreements, have been disregarded for the sake of political convenience.
Overseas Territories are separate jurisdictions whose governments have been democratically elected by the country’s public. The UK Government’s intervention by way of imposition of legislation is a gross display of modern colonisation and a disregard for British Overseas Territories’ elected representatives. Under Cayman Island’s constitution, entities registered in the Cayman Islands have a legitimate right to privacy. Failing to support this right to privacy will most definitely result in a huge loss of business for the Cayman Islands as companies seek their privacy elsewhere.