Establishing a Business

In this chapter we explain how you go about setting up a business in the Cayman Islands. We explain the legal formalities, the Trade & Business Licensing requirements, the registration process and which corporate service companies can help you with the paperwork. We then advise on finding commercial office space, give an overview of costs of office space and give insider tips on fitting out your office from a telephone, internet, computer and office staff point of view.

THE BENEFITS 

Cayman offers a well-regulated and internationally respected, tax-neutral, offshore business environment. The type of Cayman structure required or best suited for a particular endeavour will depend largely on the type of business and whether it will be conducting its affairs locally or outside of the Cayman Islands. If the business is operating in another country, advice from that country’s legal and tax counsel will be of prime importance in understanding the benefits that can be derived from setting up a business in Cayman. A fully operational physical presence with locally based staff, as opposed to a nominal presence through a registered office address, can be an essential component in ensuring compliance with many international and local reporting requirements.

There are many reasons why Cayman is a great place to have a business. We are a small yet sophisticated jurisdiction with a stable government, a well developed Common Law system based on English law and a proliferation of world class corporate and service companies, all contributing factors in making the running of a business easy. The dominant factor though is that there is no taxation on income or gains. We are, as one well known leader in his field is fond of saying, “a very, very safe oasis in a troubled world”.

LEGAL FORMALITIES

A business in the Cayman Islands can be run as a sole trader operation, as a partnership or as a limited company. 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 limited company have limited liability to third parties doing business with the company. The differences in, and suitability of, the different types of business structure are highly technical and are best discussed with an adviser qualified to discuss what might best fit your situation.

Typically small owner operated businesses with few liabilities might consider operating as a sole trader (often using a “doing business as” title such as: Fred Smith d.b.a. Fred’s Fantastic Fences). There are few formalities for formation and few annually repeating 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, multi-national 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 brings is well worth the extra effort and cost.

If your aim is to operate a business on Island, then it needs to be borne in mind that a Trade and Business Licence (“T&B Licence”) will be needed (more detail on this procedure is given later in this section and you are advised to consult an attorney who will be able to both advise and assist with compliance with the necessary local business licensing). For a business wholly or 60% owned and controlled by a person with Caymanian Status (which term includes Caymanians), the acquisition of a T&B Licence is a formality.

For a business that is not a “Local Business”, in addition to acquiring a T&B Licence it will also need to secure a Local Companies Control Law Licence (the “LCCL Licence”) unless it is otherwise exempted from this requirement.

The grant of an LCCL Licence is a matter of discretion for the Trade & Business Licensing Board which will 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 whose activities are carried on mainly outside the Islands are in most cases outside the parameters of the Local Companies Control Law due to the fact that they are not considered to be “doing business in the Islands” as that term is defined in such law. Therefore, although they would require a T&B Licence to set up a physical presence locally, they would not require an LCCL Licence or 60% ownership by a Caymanian Status holder. (It should be noted that banks, trust companies, company managers and a number of other businesses are exempted from requiring both T&B Licences and LCCL Licences though they would need to secure licensing/regulation with the Cayman Islands Monetary Authority as may be appropriate given their proposed on-Island activities).

There is a strong desire on the part of the CI Government to encourage investment into the local economy and the time could therefore be considered optimal for the set up of a physical presence on-Island.

Sole Trader

Due to immigration requirements (see the Immigration chapter), and the rules governing the grant of a T&B Licence, in practice only a Caymanian Status holder will be able to operate a business as a sole trader. 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 the sole trader 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 gets all the profits.

Partnerships

One form of partnership is where all the partners are “general” partners and participate in the management of the business and 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, but 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. In all cases you are advised to contact a specialist to determine the partnership arrangement most suitable for your needs.

Companies

The main characteristic of a limited liability company is that the company is treated in law as a legal person able to enter into contracts and own property as well as incur liabilities. An individual who is a shareholder in a company has a liability to the company limited to the amount unpaid on the shares the individual owns and cannot be liable for the liabilities of the company itself. The company may distribute profits to shareholders by paying dividends and a shareholder can only get their investment in the company back by selling or redeeming the shares they have. Company formation and operation is governed by the Companies Law (2010 Revision). Formation of a company is fast and straight forward.

Types of company:

The categories of companies that may be formed in the Cayman Islands include:

> Ordinary Companies are generally formed by those wishing to conduct business within the Cayman Islands. However you must ensure at least a 60% Caymanian participation.

> Exempted Companies are the most common and are utilised by those wishing to conduct business outside the Cayman Islands. There are no restrictions on the nationality of the directors or shareholders of an exempted company and an exempted company is not required to hold an annual shareholders meeting.

> Limited Duration Companies and Limited Life Companies were created as an equivalent of the US limited liability company but are not used very often these days as a result of changes in US tax rules which generally enable an exempted company to be used instead.

> Segregated Portfolio Companies were first developed for the Cayman Islands insurance industry, but are complicated structures that wouldn’t normally be suitable for a business supplying goods and/or services in the Cayman Islands.

REGISTRATION PROCESS

If you wish to establish a Cayman Islands company, an application must be made to the Registrar of Companies for company incorporation and a Cayman Islands registered office must be designated. The documents which are required to be filed are not pro-forma and most people would obtain help with these from attorneys or corporate services and management firms. Applications should be delivered in person to the Registrar of Companies, Ground Floor, Citrus Grove Building, Goring Avenue, George Town. (Tel: (345) 946 7922).

Application Process

Your local legal counsel or incorporation consultants can:

Contact the Registrar of Companies and enquire if the company name you want is available;

Prepare

a) Memorandum of Association;

b) Articles of Association; and

c) a cover letter providing details of the proposed business;

Provide a minimum of two sets of copies of both these signed forms (you may need a certified copy for a bank account);

Submit paperwork with a filing fee payable to the Cayman Islands Government.

The fees for incorporation vary depending on the share capital and whether the company is non-resident, resident, exempt, etc. For a typical local company with a share capital of less than CI$42,000 the fee is CI$300. The company is deemed incorporated on the day the incorporation papers and fees are submitted to the Registrar. The processing time for return of the proof of incorporation (namely the certificate of incorporation and Registrar stamped and certified Memorandum and Articles of Association) is approximately three to four business days unless these are submitted on an express basis (for an additional fee of CI$400) in which case the proof of incorporation will be returned the following business day.

As a matter of practice, the Companies Registry will require some categories of company, such as exempt companies, to have a local licensed corporate service provider maintain the company’s registered office.

Company Registry Fees

The registration and annual fees for any company are dependent on the size of the authorised share capital. Also worth noting is that licence fees are due annually in January of each year but the Companies Registry is under no obligation to notify the company that the fees are due. Every company is responsible for paying these annual fees and if you do not pay them the company will usually be struck off the register of Cayman Islands incorporated companies. If the company had any assets at the time it was struck off, those assets would then become the property of the Government of the Cayman Islands and dealings with such assets will be illegal. It is possible, if you were ignorant of the fact that annual fees are due, that your company could be struck off without your knowledge. This is one of the benefits of using a local licensed corporate services provider as they will process the annual paperwork and remind you of the amount and timing of annual fees. Their fees are a lot less than the fees you would pay to an attorney to make the necessary application to the Cayman Court for the company to be re-instated to the register!

BUSINESS PLANS

You may wish to consider professional help when it comes to creating a business plan for your business. Business plans are typically required by lenders, either in the form of banks or other investors, who want a written understanding of your business objectives, cash flow, time-lines, etc. Two companies that can help you with this exercise are the Cayman Islands Investment Bureau (Tel: (345) 945 0943) and ConsulTech (Development Advisors) Ltd. (Tel. (345) 945 2223).

FINANCING

As well as approaching any of the retail banks listed in the Settling In chapter you might also wish to consider contacting the Cayman Islands Development Bank. They offer financing to Caymanian owned small business projects, and along with the Cayman Islands Investment Bureau, will work out a business plan and repayment schedule.