Comparing Cayman Islands Fund Structures: Exempted Companies, SPCs, LPs & More

The Cayman Islands is a popular place for setting up investment funds. Many businesses choose it because of its flexible rules and tax benefits. There are different ways to set up a fund here, and the four most common structures are Exempted Companies, Segregated Portfolio Companies (SPCs), Exempted Limited Partnerships (ELPs), and Limited Liability Companies (LLCs). Each of these has its own benefits, and understanding them helps investors and managers decide which one is best for their needs.

Exempted Companies

Exempted Companies are the most common type of fund structure in the Cayman Islands. They act like regular companies but are not allowed to do business in Cayman itself unless they get special permission. These companies are great for hedge funds and other investments where investors can buy and sell shares easily.

One of the best things about Exempted Companies is that they do not have to pay corporate tax, capital gains tax or withholding tax in the Cayman Islands. This makes them very attractive for international investors. However, US investors need to check tax rules in their own country to avoid any problems.

Exempted Companies must follow some rules, like registering with the Cayman Islands Monetary Authority (CIMA) if they operate as mutual funds. They also need to have a local auditor and submit financial reports every year. The company is usually managed by a board of directors, and having independent directors can make investors feel more secure.

Segregated Portfolio Companies (SPCs)

Segregated Portfolio Companies are a special type of Exempted Company that allows different funds to be managed under the same company while keeping their assets and liabilities separate. Each “cell” inside an SPC operates as its own mini-fund, so the money in one part of the company is protected if another part runs into trouble.

Segregated Portfolio Companies work well for fund managers who want to run multiple investment strategies or funds under one legal entity. They help save money on administration while keeping investments legally separate. However, SPCs are not the best option for private equity or venture capital funds because they require a different structure.

Exempted Limited Partnerships (ELPs)

ELPs are mostly used for private equity and venture capital investments. They work differently from Exempted Companies because they are not separate legal entities. Instead, there are agreements between a General Partner (GP) who manages the fund and Limited Partners (LPs) who invest money but do not make management decisions.

One major benefit of ELPs is that they do not pay corporate tax in the Cayman Islands. Instead, investors pay taxes in their own countries based on their share of the profits. This is especially helpful for US investors who want a structure that fits their tax rules.

ELPs are highly flexible, allowing partners to agree on how profits are shared and how the fund operates. However, they require a General Partner who is responsible for managing the fund and making sure it follows the rules. If the ELP is a private fund, it must register with CIMA, get annual audits, and meet other compliance requirements.

Limited Liability Companies (LLCs)

Cayman LLCs are a newer option introduced in 2016. They are similar to US LLCs and offer a mix of company and partnership benefits. Unlike Exempted Companies, LLCs do not have shares. Instead, investors own membership interests and management is controlled by an LLC Agreement instead of a board of directors.

LLCs are useful for investors who want a flexible structure with limited liability. Like ELPs, LLCs can be treated as pass-through entities for tax purposes, meaning that investors handle taxes in their own countries instead of the company paying corporate tax.

These companies are good for fund managers who want a structure that offers both protection and flexibility. If an LLC operates as a fund, it must register with CIMA and follow the same rules as other Cayman-domiciled investment funds.

Comparing Cayman Islands Structures

Each of these fund structures has different strengths and weaknesses:

• Exempted Companies are best for hedge funds and funds that need easy buying and selling of shares.
• SPCs are good for managing multiple funds under one company while keeping their assets separate.
• ELPs work well for private equity and venture capital funds that want flexibility in managing investments and profits.
• LLCs offer a hybrid approach with flexible governance and tax benefits, making them ideal for certain US focused funds.

Final Words

Choosing the right Cayman fund structure depends on what the fund is trying to do, who the investors are and what tax and regulatory rules apply to you. Hedge funds usually choose Exempted Companies or SPCs, while private equity funds prefer ELPs. LLCs are a good alternative for managers looking for flexibility and tax benefits.

Because fund structuring can be complex, fund managers should work with legal and tax experts to find the best fit for their needs. As global investment rules change, the Cayman Islands continues to be a top choice for fund managers and investors looking for strong, efficient fund structures.

Looking to explore Cayman Islands fund structuring? Contact us today to find out more.

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Other articles that may be of interest:

• Top 25 Service Providers in the Cayman Islands for Fund Managers
• How to Set Up a Venture Capital Private Equity Fund in the Cayman Islands
• Cayman Islands Fund Structures: Understanding the Mutual Funds Act vs. Private Funds Act

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