November 30, 2021

Private Equity in the Cayman Islands

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screen-shot-2016-12-03-at-12-34-05-pmFrom Harneys


Fund vehicle options

Exempted limited partnerships

Limited liability companies

Exempted companies



All of the above entities can be established on an expedited basis and no governmental or regulatory approvals are required.

Taxation of vehicles

All of the above vehicles are exempted from any Cayman Islands income or gains taxes and can obtain a tax undertaking certificate from the Cayman Islands government guaranteeing no change in their tax status for 20 years for exempted companies and 50 years for exempted limited partnerships and limited liability companies (LLCs) or more.

Liability of investors

All of the vehicles issue equity interests which typically limit investor liability to the amount paid or agreed to be paid in respect of their investment.

Management of entities

An exempted company’s management rests with its board of directors, an exempted limited partnership’s with its general partner (typically a Cayman exempted company and so ultimately with that entity’s board) and an LLC’s with its manager.


Regulation of investment funds in the Cayman Islands is governed by the Mutual Funds Law. However, closed ended funds such as private equity funds do not fall within the definition of a `mutual fund’ and are therefore not regulated by the Cayman Islands Monetary Authority (CIMA).

Exempted limited partnerships


The Exempted Limited Partnership Law (ELP Law) governs the formation of exempted limited partnerships in the jurisdiction. The Partnership Law also contains provisions relevant to the affairs of an exempted limited partnership, being the primary legislation governing partnerships generally.

Nature of an exempted limited partnership

The Partnership Law defines a partnership as `the relation which subsists between persons carrying on a business with a view to profit.’ An exempted limited partnership is a partnership consisting of at least one general partner (who has responsibility for the business affairs of the partnership) and any number of limited partners, which is registered as such under the ELP Law.

No separate legal personality

An exempted limited partnership is not a separate legal entity. It is instead a set of contractual obligations affecting the partners inter se where a general partner is vested with certain powers and obligations in relation to a business and the assets of the business. While it is not a separate legal entity, an exempted limited partnership is not dissolved or disrupted by a change in the identity of the partners, the assignment of a limited partnership interest or the death or bankruptcy or incapacity of a limited partner.

Transparent vehicle

Exempted limited partnerships are often treated differently than companies for onshore tax purposes, typically being treated as fiscally transparent. Onshore tax advice should always be taken prior to entering into any offshore arrangement or investment.

General partner

The general partner holds the partnerships assets in statutory trust for the partners, is tasked with managing the business and affairs of the exempted limited partnership. In the event that the assets of the partnership are inadequate to satisfy the claims of creditors, the general partner is liable for the debts and obligations left unpaid.

A general partner must act at all times in good faith and, subject to any express provisions in the partnership agreement to the contrary, in the interests of the exempted limited partnership.

Limited partners

Under the ELP Law, Limited Partners are partners who do not manage the business of the partnership or hold assets in its name and whose liability for partnership obligations is typically limited to the level of their agreed commitment – the amount they have agreed to advance to the partnership on demand to allow the partnership to fund its investments and expenses. A limited partner does not lose its limited liability status as a limited partner unless it takes part in the conduct of the business of partnership in its dealings with persons who are not partners as though it were, for that period, a general partner. In such a case liability is only to a person who transacts business with the partnership with actual knowledge of the limited partner’s management participation and who then reasonably believed the limited partner to be a general partner.

The limited partners may vote to approve or veto any proposed matter as an internal partnership governance matter and they will not lose their limited liability if only the general partner actually transacts approved business with third parties.

The partnership agreement should carefully delineate the respective roles of the general and limited partners to make sure that there is no inadvertent loss of limited liability.

A limited partner does not, unless the partnership agreement provides otherwise, owe any fiduciary duty to the partnership or any other partner.


Registration of an exempted limited partnership is accomplished by the filing with the Registrar of a statutory statement signed by or on behalf of the general partner. This statement contains the fundamental particulars of the exempted limited partnership: its name, a general description of its business, its address, the term (if any) for which the exempted limited partnership is entered into, the date of its commencement, and the particulars of its general partner. The statement also includes a declaration that the exempted limited partnership will not carry on business with the public in the Cayman Islands (other than to the extent necessary to facilitate its overseas business).

Residency requirements

Every exempted limited partnership must have a registered office in the Cayman Islands. There are local residency requirements for at least one general partner:

  • if the general partner is an individual, he or she must be resident in the Cayman Islands;
  • if the general partner is a company, it must be registered under the Companies Law (whether by incorporation as a Cayman Islands company or as a foreign company having a place of business in the Islands); or
  • if the general partner is itself a partnership, it must be registered under the ELP Law.

Local presence is a logical requirement so that the Cayman courts may be vested with jurisdiction over the partnership and so that the partners are rendered more readily accountable to the provisions of the ELP Law.

Statutory registers

The general partner has the responsibility for maintaining (or causing to be maintained) a register of limited partners. This register must include particulars regarding the name and address of each limited partner, and the date on which a person became or ceased to be a limited partner. The register of limited partners need not be kept at the registered office, and can be kept outside of the Cayman Islands. If the register is kept at a place other than the registered office it must still be readily accessible, as it must be made available at the registered office should there be a notice or order for production under the Tax Information Authority Law.

The register can be kept in electronic form and must be updated within 21 days of any changes. The register (and the record of address at which the register is maintained, where applicable) is open to inspection by all partners (subject to any express or implied term of the partnership agreement) and by any other person with the consent of the general partner.

The record of contributions and payments

The general partner is also required to maintain (or cause to be maintained) a record of the amount and date of the contribution or contributions of each limited partner and the amount and date of any payment representing a return of the whole or any part of the contribution of any limited partner. As with the register of limited partners, this record may be kept in or outside of the Cayman Islands but must be updated within 21 days of any change and be accessible to the registered office. These records are only available for inspection by any person (including a limited partner) with the consent of the general partner.

The register of security interests

A register of security interests must be maintained at the registered office. When a security interest is granted over the whole or any part of a limited partnership interest, notice must be given by the grantor or the grantee to the ELP at the registered office. The general partner must then enter on the register the identity of the grantor and the grantee, the relevant partnership interest, and the date on which notice of the security interest was validly served. The register is open for inspection during regular business hours. Any security interest has priority according to the time that the written notice is validly served at the registered office.

Annual requirements

The general partner is required to make an annual return to the Registrar regarding compliance with the ELP Law and to pay an annual return fee. Details of relevant fees are available upon request.

Changes to the partnership statement

Any changes to the statutory statement provided to the Registrar upon registration must be promptly notified to the Registrar. In general, changes must be notified within 60 days; however, a change to the general partner must be filed within 15 days of the change and does not come into effect until such filing is completed.

The partnership agreement

The partnership agreement provides for the establishment of, and regulates the affairs of, an exempted limited partnership, the conduct of its business and the rights and obligations of the partners amongst themselves. Depending on the nature of the business, the partnership agreement may be very brief, amounting to little more than a skeleton agreement under which the general partner may exercise considerable discretion, or it may be very detailed and robust, similar to the articles of association of a company. The partnership agreement is not registered with any authority and is not open to public inspection.

Dealings with partnership interests

With the consent of the general partner, a limited partner may transfer or grant a security interest in its partnership interest (subject to any provisions in the partnership agreement dispensing with or modifying the requirement for consent).

In the case of a transfer of a partnership interest, the transferee is typically admitted to the partnership in accordance with the formalities prescribed in the partnership agreement. Once the requirements for admission have been met, the incoming partner is deemed to have agreed to and be bound by the terms and conditions of the partnership agreement as if all parties had together duly executed and delivered it.

Failures to perform

The partnership agreement may include provisions setting out the consequences for a partner who fails to perform any of its obligations under the partnership agreement. For example, the partnership agreement may provide that if a limited partner fails to contribute to the partnership such funds as were committed, that partner shall forfeit its partnership interest. The ELP Law expressly provides that such provisions in the partnership agreement will not be unenforceable solely on the basis that they may be penal in nature.

Return of contributions

If a limited partner receives a payment (or is released from an obligation) in respect of its commitment and at the time that the payment or release was made the partnership is insolvent and the limited partner has actual knowledge of the insolvency, then for a period of six months the limited partner is liable to the partnership for the amount, (to the extent required to settle the debts of the partnership).


The general partner is required to keep (or cause to be kept) proper books of account. The records must be sufficient to give a true and fair view of the business and financial condition of the exempted limited partnership and to explain its transactions. These records must be retained for a minimum period of five years.

Subject to the partnership agreement, each limited partner may demand and receive from the general partner a true and full picture of the state of the business and financial condition of the partnership.


A general partner may apply to the Registrar to de-register the exempted limited partnership in the Cayman Islands and continue the partnership in another jurisdiction. For de-registration to be available, the foreign jurisdiction must permit (or not prohibit) the transfer of the exempted limited partnership. In addition, a fee must be paid and the application must be supported by an affidavit of the general partner assuring the Registrar that certain conditions, ie the solvency of the partnership, are met.

Strike off

Where the Registrar has reasonable cause to believe that an exempted limited partnership is not carrying on business or is not in operation, it may strike the partnership from the register. A general partner may request, upon payment of a prescribed fee, that an exempted limited partnership be struck off the register. A partner or creditor aggrieved by a striking off may apply to have the exempted limited partnership restored to the register.


Most exempted limited partnership agreements contain provisions prescribing the automatic winding up and dissolution of the partnership upon the occurrence of a particular event. That event is typically the passing of a resolution by the general partner to the effect that the partnership’s affairs be wound up and the partnership dissolved. In the absence of such a provision, a solvent partnership will continue in existence until wound up and dissolved by a resolution of all general partners and a two-thirds majority of the limited partners.

The death, bankruptcy or incapacity of the last remaining general partner will by law determine the partnership unless the limited partners take steps to replace them.

A partner or creditor can apply to the court for an order for dissolution on just and equitable principles.

In cases not involving automatic dissolution, the provisions of Part V of the Companies Law (dealing with liquidations of a company) and the Company Winding Up Rules are deemed to apply.

EU Connected Funds

The Cayman Islands Government has passed legislation, which is expected to come into force in 2017, which will introduce the concept of `EU Connected Funds’ to enable Cayman Islands funds to take advantage of the passport regime under the Alternative Investment Fund Managers Directive1 as and when it becomes available to Cayman Islands funds. Further secondary legislation is also expected to be passed setting out in detail how EU Connected Funds will be regulated. The EU Connected Fund regime under the Mutual Funds Law will allow both open-ended and closed-ended funds to apply to be registered or licensed with CIMA as EU Connected Funds and therefore enable them to benefit from the EU passport regime.

Limited liability companies

Limited liability companies (LLCs) may be incorporated in the Cayman Islands under the Limited Liability Companies Law (the LLC Law) in a form closely aligned to the Delaware LLC. LLCs may be used in private equity fund structures where a flexible structure similar to a limited partnership is required, but where the vehicle needs to be established as a body corporate distinct from its members. LLCs are regulated by their LLC agreement and the LLC Law.

Nature of an LLC

An LLC is a body corporate, with limited liability, which may be formed for any lawful purpose. LLCs are capable of exercising all the functions of a natural person. Under the LLC Law, and unlike the position in Delaware, the member(s) must have an LLC agreement. However, although the LLC Law contains numerous default positions which apply in the absence of express agreement, it also provides great flexibility to members of an LLC to regulate their relationship in their LLC agreement. Unless its LLC agreement provides otherwise, an LLC has the power to do all things necessary or convenient to carry on its business.

Separate legal personality

A key feature of LLCs is that, like exempted companies but unlike exempted limited partnerships, an LLC has separate legal personality from its members. An LLC must have at least one member and there are no Cayman Islands residency requirements for members.


An LLC can be registered by paying a fee and filing a registration statement with the Registrar, signed by the person(s) forming the LLC and setting out the name of the LLC, the address of its registered office in the Cayman Islands, if the LLC is not formed for an unlimited duration, the term for which it is formed, and a declaration that the LLC will not undertake business with the public in the Cayman Islands other than as necessary for carrying on its business outside Cayman.

Any amendments to the details set out on the registration statement must be filed with the Registrar within 30 days of the change together with the applicable filing fee.


The LLC Law provides for management powers to be vested in members acting by a majority in number or alternatively in one or more managers, as set out in the LLC agreement. As is the case for members, there are no Cayman Islands residency requirements for managers. The members or manager(s) do not owe any fiduciary duties to the LLC or any member or other person except, in the case of manager(s), a duty of good faith, which can be expanded or restricted by the express provisions of the LLC agreement.

A manager of an LLC may also, but is not required to, be a member of the LLC and the LLC agreement may provide for different classes of managers with varying rights, powers and duties, with voting allowed on a per capita, number, financial interest, class, group or any other basis.

Members and classes of interests

There must be at least one member of an LLC at all times.

An LLC may issue an LLC interest to a proposed member in accordance with the terms of the LLC agreement, or if the LLC agreement is silent then with the consent of all members and on the member’s admission being reflected in the records of the LLC. Unless the LLC agreement provides otherwise, members have no preemptive right to subscribe for LLC interests on further issues. The LLC Law also provides for the creation of classes of member / interest, with varying rights, powers and duties.

LLC interests may be transferred, on the terms set out in the LLC agreement or, if the LLC agreement is silent, the assignee may become a member with the approval of all of the members of the LLC. Subject to the LLC agreement, a member’s right to receive any payments or distributions of an LLC interest are also capable of assignment.

Subject to the terms of the LLC agreement, any matter to be voted on by members may be approved by consent in writing signed by members having sufficient votes necessary to authorise the matter at a meeting of the members. Unless otherwise provided in the LLC agreement or the LLC Law, votes of members are passed by a simple majority in number of the members entitled to vote on the matter.

Annual requirements

As is the case with exempted companies and exempted limited partnerships, LLCs are required to make an annual return to the Registrar in January each year confirming compliance with the LLC Law and to pay an annual return fee.

Statutory registers

An LLC must maintain a register of members, a register of contributions, a register of managers, a register of security interests over LLC interests and a register of mortgages and charges.


An LLC must maintain accounts, including, where relevant, underlying documentation including contracts and invoices, with respect to all sums of money received and paid by the LLC, all sales and purchases of goods by the LLC and the assets and liabilities of the LLC. The accounts must give a true and fair view of the business and financial condition of the LLC and explain its transactions and be kept for at least 5 years.

Please see our Guide to Limited Liability Companies for more details about LLCs.

Exempted companies

Exempted companies are occasionally used as private equity vehicles, most often because investors in certain jurisdictions may require a slightly different tax treatment than they would receive by investing in a partnership. Given most investors’ familiarity with the partnership model, the decision to choose a corporate vehicle for a private equity fund should be carefully considered.

The following are some of the issues that need to be considered when using an exempted company as a private equity vehicle:

Capital calls

Capital calls can be effected in one of two ways: (i) partly paid shares are issued in respect of the first closing, with provision for additional sums to be paid on those shares on each subsequent closing or capital call; or (ii) fully paid shares equal to the amount of capital called at first closing are issued, with additional fully paid shares being issued for each subsequent closing or capital call. The difficulty with approach (i) is that partlypaid shares cannot be repurchased by the company as a matter of Cayman Islands law, which causes difficulties (for example, when enforcing forfeiture provisions against a defaulting shareholder). Additionally, partly-paid shares must be allocated a distinguishing number in the company’s books, which places an administrative burden on the company’s directors or administrator.

Capital accounts

Although many fund administrators can easily run capital accounting in respect of any form of vehicle, from a purely legal structuring perspective, capital accounting does not easily fit within the corporate model, but can be replicated by including in the articles of association an artificial mechanism for creating individual capital accounts for each investor. However, the directors of a corporate fund must treat all shares in a class identically and unless investors are each given their own separate class of equity, this causes structuring difficulties if an investor has to be treated differently from other class members (for example, on a default).

General provisions affecting Cayman Islands funds

Registered office

All Cayman Islands exempted companies, exempted limited partnerships and LLCs must have a registered office in the Cayman Islands provided by a person licensed under the Companies Management Law or the Banks and Trust Companies Law.

Location of service providers

There is no requirement that a fund’s service providers be based in the Cayman Islands or in any prescribed jurisdiction.

AML compliance

While mutual funds are explicitly caught by the remit of Cayman Islands money laundering legislation, private equity funds are not expressly covered within the relevant definitions in the Cayman Islands statutes. However, it is best practice for general partners to conduct standard KYC and due diligence procedures on investors in accordance with Cayman Islands anti-money laundering legislation or delegate responsibility for AML compliance to an administrator.

Automatic exchange of information

Cayman Islands funds are not directly subject to the US Foreign Account Tax Compliance Act (FATCA), however the Cayman Islands has introduced legislation implementing FATCA requirements for `financial institutions’ to identify and report certain US accounts to the Cayman Islands Tax Information Authority (TIA) on an annual basis.

The Cayman Islands has also enacted regulations (CRS Regulations) to implement the OECD common reporting standard on automatic exchange of information (CRS) into Cayman Islands law. Under the CRS Regulations, Cayman Islands `reporting financial institutions’ will have to report information on the holders of `reportable accounts’ which are tax resident in `reportable jurisdictions’.

The Cayman Islands currently has an intergovernmental agreement with the United Kingdom (UK FATCA) which sets out similar due diligence and reporting obligations. However, UK FATCA will be phased out in 2017 as the Cayman Islands, the United Kingdom and all other British Overseas Territories and Crown Dependencies have undertaken to adopt the CRS.

The majority of Cayman Islands funds fall within the definition of an `investment entity’ and are generally classed as a `financial institution’ for FATCA, UK FATCA and CRS purposes. As a result, those funds will have information gathering and reporting obligations to report the relevant information to the TIA on an annual basis and that information will then be sent automatically to the relevant home tax jurisdiction of the relevant account holders.

For further details of applicable FATCA, UK FATCA and CRS requirements, please contact your usual Harneys contact who would be happy to assist.

Investment managers

There is no restriction on the location of the investment manager of a private equity fund if the investment management is not carried out by its general partner (for an exempted limited partnership) and many managers decide to set up a Cayman Islands vehicle as the investment manager or adviser to the fund.

The Securities Investment Business Law (SIB Law) regulates the advisory and management services of investment managers and investment advisers incorporated, registered or with a place of business in the Cayman Islands. Cayman Islands managers managing private equity funds will generally be exempted from regulation under the SIB Law provided that certain criteria are satisfied.

Investment managers and advisers who are exempt from the requirement to be licensed under the SIB Law must, however, file an annual declaration with CIMA to confirm their exempt status and pay the prescribed exemption fee. Further details on investment managers and advisers and the SIB Law can be found in our Guide to the Securities Investment Business Law.

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