In this chapter of the guide, references to Cayman Islands statutes are to those statutes as amended, unless stated otherwise.

Forms of Business Entity

The Cayman Islands offers a wide range of vehicles to facilitate corporate transactions. The most commonly used vehicles are exempted companies, limited liability companies (LLCs) and exempted limited partnerships (ELPs). Other vehicles include segregated portfolio companies (SPCs), ordinary resident companies, foundation companies and trusts, including STAR trusts established under the Trusts Act.

Exempted companies

The exempted company is the most widely used Cayman Islands company and is incorporated under the Companies Act. Exempted companies may obtain a 30-year undertaking from the Cayman Islands government that no tax will be imposed on the company or its shareholders. The identity of shareholders is not generally a matter of public record. Most exempted companies issue shares with a par value, although it is possible for exempted companies to issue shares without a par value. Exempted companies may create classes of shares with different economic and voting rights and may hold shares in treasury. Unless the articles of association require otherwise (eg, where the company’s shares are listed), exempted companies do not need to hold annual general meetings and unregulated exempted companies are not required to prepare and file audited financial statements with any Cayman Islands regulator. Exempted companies are often used as general partners of ELPs. Most hedge funds are structured as exempted companies.

Limited liability companies

LLCs are formed under the Limited Liability Companies Act, which is broadly similar to the Delaware LLC equivalent. They are widely used for joint ventures, carried interest arrangements, private investment structures and fund-related vehicles, including as general partners of ELPs. An LLC is a body corporate with separate legal personality and at least one member. Its LLC agreement provides substantial contractual flexibility and may vest management in the members or designated managers. By default, managers owe a duty of good faith, although the LLC agreement may expand or restrict that duty. LLCs may obtain a 50-year tax undertaking.

Exempted limited partnerships

ELPs are established under the Exempted Limited Partnership Act and are the preferred vehicle for closed-ended investment fund structures. An ELP has no separate legal personality, and its property is held on statutory trust by its general partner. An ELP must have at least one general partner, which may be an individual resident in the Cayman Islands, a Cayman Islands company, LLC, another ELP, or a foreign company or partnership registered in the Cayman Islands. An ELP must also have at least one limited partner. ELPs may obtain a 50-year tax undertaking.

A limited partner’s liability is generally limited to its agreed contribution, although a limited partner that takes part in the conduct of the ELP’s business may be liable to third parties who reasonably believed it to be a general partner. The Exempted Limited Partnership Act lists a number of safe harbours for conduct that will not expose a limited partner to liability. In addition, a limited partner may be required to return distributions received while the ELP was insolvent where it had knowledge of the insolvency.

Other vehicles

• Segregated portfolio companies (SPCs) – These are Cayman Islands exempted companies with statutory ring-fencing of assets between separate portfolios, most commonly used in insurance and fund structures.
• Foundation companies – These are companies registered under the Foundation Companies Act, which are increasingly used for Web3, decentralised autonomous organisations and charitable structures.
• Limited liability partnerships – These are partnerships registered under the Limited Liability Partnership Act, and these vehicles have separate legal personality.
• Unit trusts – These are used for certain funds, particularly Japan-facing funds.
• Special economic zone companies (SEZCs) ‒ These are Cayman Islands exempted companies with a physical presence in the Cayman Islands that operate within Cayman Enterprise City (CEC) and are restricted to conducting offshore activities.
• Limited duration companies (LDCs) – These are exempted companies with a maximum duration of 30 years and a minimum of two members. They are not commonly used, particularly following the introduction of the US “check-the-box” tax election regime on 1 January 1997.
• Ordinary non-resident companies – These are incorporated in the Cayman Islands but carry on business mainly outside the jurisdiction. They must file an annual return disclosing the names of members, directors and officers.
• Ordinary resident companies – These are companies that carry on business within the Cayman Islands. They are subject to local licensing requirements and the Local Companies (Control) Act, which generally requires at least 60% of the company’s shares to be beneficially owned by Caymanians and at least 60% of its board to be Caymanian, unless a licence is granted. They must also hold an annual general meeting and file an annual return with the Registrar of Companies, among other obligations.

Factors Driving Choice of Entity

The choice of vehicle depends on several factors, including the following:

• desired level of liability protection;
• tax neutrality;
• flexibility of constitutional documents;
• regulatory treatment; and
• the nature of the proposed business.

A key distinction is that companies and LLCs have separate legal personality, whereas ELPs do not. LLCs offer a degree of contractual freedom, making them attractive for sophisticated commercial arrangements. The Cayman Islands does not impose income tax, capital gains tax, withholding tax or estate or inheritance tax on any of these vehicles or on their investors (who must comply with the tax laws of their home jurisdictions).

To incorporate an exempted company, the subscriber files the company’s memorandum and articles of association, together with the prescribed fees and an affidavit, with the Cayman Islands Registrar of Companies. The Registrar will ordinarily issue a certificate of incorporation within three business days of filing, with same-day expedited processing available on payment of an additional fee. The date of registration will be the date of filing.

Registration fees range from approximately USD854 to USD3,132, depending on the amount of authorised share capital. The most commonly adopted authorised share capital for Cayman Islands companies is USD50,000 as this is the maximum amount of authorised share capital available for the lowest incorporation and annual fee.

To register an LLC, the applicant files a registration statement with the Registrar of Limited Liability Companies. A certificate of registration is typically issued within three business days of filing, with same-day expedited processing available on payment of an additional fee. The date of registration will be the date of filing. Registration fees are approximately USD1,100.

All exempted companies and LLCs must maintain a registered office in the Cayman Islands, which is commonly provided by a licensed corporate services provider.

Ongoing Compliance Obligations

Exempted companies, LLCs and ELPs must file an annual return and pay an annual fee by 31 January each year. Annual government fees range from approximately USD1,250 to USD3,528 for exempted companies (depending on authorised share capital), approximately USD1,200 for LLCs and approximately USD1,710 to USD2,683 for ELPs. Exempted companies, LLCs and ELPs must each maintain statutory registers (for exempted companies, a register of members, a register of directors and officers and a register of mortgages and charges). Books of account must be maintained and kept for a minimum of five years.

Additional compliance requirements include maintaining and providing prescribed beneficial ownership information in accordance with the Cayman Islands Beneficial Ownership Transparency Act, filing an annual economic substance notification (made with the annual return) and, where applicable, registering and reporting under the Common Reporting Standard (CRS) and the US Foreign Account Tax Compliance Act (FATCA). Subject to any contractual, constitutional or sector-specific requirements, unregulated entities are generally not required to prepare and file audited financial statements with a Cayman Islands government authority.

Share Capital Structure

Exempted companies are typically limited by shares and most typically issue shares with a par value. No par value shares are permitted under the Companies Act for exempted companies but are uncommon in practice, primarily because the entire consideration received for such shares is treated as share capital, reducing flexibility in relation to distributions and capital management. There is no minimum paid-in capital requirement (other than in respect of certain regulated companies, such as insurance companies). Fractional shares may be issued if authorised by the articles of association.

Classes of Shares and Rights

Companies may create multiple classes of shares, each carrying different rights as to voting, dividends and return of capital on a winding up. Preferential rights, conversion rights and anti-dilution protections are typically attached to particular share classes in the articles of association and/or in an ancillary document such as a shareholders’ agreement or offering memorandum. If authorised by the company’s articles of association, a company may increase its share capital by new shares of such amount as it thinks expedient, consolidate and divide all or any of its share capital into shares of larger amount than its existing shares, subdivide its shares or any of them, and cancel any unissued shares.

Treasury Shares

Cayman Islands companies may hold shares that have been repurchased, redeemed or surrendered as treasury shares, rather than cancelling them, provided its memorandum and articles of association do not prohibit this and it is authorised to do so (by its articles or a resolution of the directors) before such purchase, redemption or surrender. While held in treasury, the shares carry no voting rights, no dividend or other distribution may be paid on them (including on a winding up), and they are disregarded in calculating the number of shares in issue. Treasury shares may subsequently be cancelled or transferred on such terms as the directors determine, subject to the memorandum and articles.

Dividends

Dividends may be paid out of profits (including retained earnings) or, subject to the provisions of the memorandum and articles, from the share premium account, provided that no distribution or dividend may be paid to members out of the share premium account unless, immediately following the date on which the distribution or dividend is proposed to be paid, the company shall be able to pay its debts as they fall due in the ordinary course of business. There is no statutory prohibition on a company providing financial assistance for the purchase of its own shares although directors must be satisfied that doing so is in the company’s best interests and for a proper purpose.

Redemption and Repurchase of Shares

Shares may be redeemed or repurchased if authorised by the company’s articles of association. The payment may be made out of the company’s profits, from the share premium account or from the proceeds of a fresh issue of shares. If specifically authorised by the articles, payment may be made out of capital, subject to the company satisfying the solvency test. Subject to the articles of association and the Companies Act, shares may be surrendered to the company for no consideration.

Reduction of Capital

A company may reduce its share capital through a court-approved process under the Companies Act, which requires a special resolution of shareholders and confirmation by the Grand Court. The timing of a court-approved reduction depends on the court timetable and the circumstances of the transaction.

Following a recent legislative amendment, a company may now also reduce its issued share capital by special resolution of shareholders supported by a solvency statement from the directors, without court involvement. For LLCs, membership interests may be acquired or redeemed, provided the LLC satisfies the statutory solvency test.

Beneficial Ownership Regime

The Cayman Islands has implemented a beneficial ownership transparency regime under which in-scope legal persons (which include Cayman Islands companies, LLCs and partnerships but exclude trusts) must identify their registrable beneficial owners and, through their corporate services provider, establish and maintain a register containing adequate, accurate and current beneficial ownership information. This information is filed by the corporate services provider on a centralised, secure electronic platform and is not generally accessible to the public. The competent authority (being the Minister for Financial Services, who has delegated the function to the Registrar of Companies) may access it and may grant access, or provide beneficial ownership information, to certain persons, primarily Cayman Islands and overseas law enforcement, tax and regulatory authorities. Access to certain beneficial ownership information may also be granted, on application, to certain members of the public who can demonstrate a legitimate interest in the information sought.

Alternative Compliance

Certain entities may use an alternative route to compliance instead of the full beneficial ownership reporting requirements. These include entities listed on an approved stock exchange (and their subsidiaries), entities licensed by the Cayman Islands Monetary Authority (CIMA) and investment funds registered with CIMA under the mutual funds or private funds legislation.

No General Control Person Reporting

Beyond the beneficial ownership regime, there is no general “control person” reporting obligation in the Cayman Islands. The emphasis of the regime is on identifying ultimate beneficial owners, being those with specified levels of ownership or control, rather than focusing on control only.

Principal Legislation

The primary legislation governing corporate governance for Cayman Islands companies is the Companies Act. For LLCs, the equivalent statute is the Limited Liability Companies Act. These statutes establish the legal framework governing the formation, operation, governance and winding up of each type of entity.

There is no general corporate governance code applicable to Cayman Islands companies. However, CIMA has issued rules and statements of guidance on corporate governance for the entities it regulates, and Cayman companies that are listed on a stock exchange will be subject to the governance requirements of that exchange.

Common Law and Regulatory Overlay

Much of Cayman Islands corporate governance law comes from common law rather than statute, including the duties that directors owe to the company (see 2.2 Directors’ Duties and Liabilities). The company’s memorandum and articles of association, and any shareholders’ agreement, may also set governance rules.

Entities operating in the financial services sector are also subject to sector-specific regulatory legislation, including the following:

• Mutual Funds Act;
• Private Funds Act;
• Securities Investment Business Act; and
• Directors Registration and Licensing Act.

These statutes impose additional governance and compliance obligations on regulated entities and their directors.

Fiduciary Duties

Directors of Cayman Islands companies owe fiduciary duties to the company (not, generally, to individual shareholders). These duties are derived from common law and include the following:

• to act honestly and in good faith in the best interests of the company;
• to exercise powers for a proper purpose;
• not to fetter their discretion;
• to avoid conflicts between personal interests and the interests of the company;
• not to make secret profits; and
• when exercising powers affecting shareholder rights, to act fairly as between shareholders.

English and other leading Commonwealth authorities are highly persuasive in the Cayman Islands, but are not binding. Directors’ fiduciary duties arise principally under common law rather than being codified in the Companies Act. Companies listed on the Cayman Islands Stock Exchange (CSX), and entities operating in regulated sectors, are subject to additional governance, disclosure and compliance requirements.

Standard of Care

The standard of care expected of a director has both an objective and a subjective element. A director must show the care, diligence and skill of a reasonably diligent person with both the general knowledge, skill and experience reasonably expected of someone in that director’s role and the actual knowledge, skill and experience of that particular director. This means that a director with specialist expertise (eg, in finance or accounting) may be held to a higher standard than a non-specialist director.

The Creditor Duty

When a company is insolvent or bordering on insolvency, directors must have regard to the interests of the company’s creditors as a whole. The duty is owed to the company and is typically enforced by a liquidator.

The weight to be given to creditors’ interests increases as the company’s financial position deteriorates. While the duty does not ordinarily require directors to subordinate all other considerations to creditors’ interests, where an insolvent liquidation is inevitable, those interests become paramount.

Liability and Indemnification

Directors may be personally liable for breach of fiduciary duty, negligence or fraud. It is standard practice for articles of association to include exculpation and indemnity provisions in favour of directors, to the maximum extent permitted by law (which does not permit exculpation or indemnification arising from a director’s own actual fraud or wilful default). Many companies also maintain directors’ and officers’ liability insurance.

LLC Managers

The position for managers of a Cayman Islands LLC differs from that of company directors. The Limited Liability Companies Act permits the LLC agreement to expand or restrict fiduciary and other duties that might otherwise apply. Accordingly, the scope of a manager’s duties will depend heavily on the terms of the LLC agreement.

Statutory Requirements

The Companies Act does not prescribe a minimum or maximum number of directors for exempted companies, though the articles of association will typically specify a minimum. There is no statutory requirement for directors or shareholders to be resident in the Cayman Islands, and corporate directors are permitted. There are no mandatory requirements regarding board independence, gender diversity or the composition of board committees for private companies.

Regulated Entities

Entities regulated by CIMA, including registered mutual funds and private funds, are required to have a minimum of two directors who are natural persons (or, where the fund is not a company, an operator such as a general partner with at least two directors or equivalent officers). Directors of “covered entities”, principally regulated mutual funds and entities registered under the Securities Investment Business Act, must also be registered or, in the case of professional and corporate directors, licensed with CIMA under the Directors Registration and Licensing Act. Licensed directors are subject to CIMA’s fit and proper requirements.

Companies listed on the CSX are subject to the CSX Listing Rules, which impose additional governance and board-related requirements.

Meetings

There is no statutory requirement to hold board meetings in the Cayman Islands, though the economic substance regime may influence the location of board meetings for entities carrying on “relevant activities” in the jurisdiction. Exempted companies are not required to hold annual general meetings of shareholders unless the articles of association so provide. A company secretary is not required under the Companies Act.

Current Position

There is no comprehensive environmental, social and governance legislation in the Cayman Islands and no mandatory climate-related financial disclosure requirements. Directors’ duties do not expressly require the consideration of environmental, social or broader stakeholder interests.

Directors are subject to a fiduciary duty to avoid conflicts between their personal interests and the interests of the company and must not make secret profits from their position. There is no specific statutory regime governing related-party transactions in the Cayman Islands. Instead, common law duties of directors, together with any provisions in the articles of association, provide the principal framework for managing conflicts.

Disclosure and Authorisation

The articles of association of a Cayman Islands exempted company commonly contain provisions permitting directors to disclose an interest in a proposed transaction or arrangement and, subject to the terms of those articles, to be counted in the quorum and vote on the relevant board resolutions notwithstanding that interest. Such provisions do not relieve directors of their overriding duty to act in good faith in the best interests of the company. The scope and mechanics of these provisions vary between companies and should be considered carefully in each case.

Subject to any restrictions imposed by law and the nature of the breach, shareholders may in certain circumstances ratify conduct that would otherwise constitute a breach of duty.

Voting Rights

The voting rights of shareholders in a Cayman Islands exempted company are determined by the company’s memorandum and articles of association and any ancillary documents, subject to the mandatory requirements of the Companies Act, including the statutory thresholds for special resolutions. An ordinary resolution is generally passed by a simple majority of votes cast by shareholders entitled to vote who are present and voting (in person or by proxy). A special resolution requires a majority of not less than two thirds of the votes cast by shareholders entitled to vote (or such higher threshold as may be specified in the articles of association).

Subject to the company’s articles of association, shareholders may approve resolutions by written resolution. A written special resolution must be signed by all shareholders entitled to vote on the matter; the articles may permit written ordinary resolutions or other consents on a non-unanimous basis. Written resolutions avoid the need to convene a physical meeting.

Certain matters require shareholder approval under the Companies Act. These include:

• amendments to the memorandum and articles of association (by special resolution);
• change of name (by special resolution);
• reduction of share capital (by special resolution and, where the solvency statement route is not used, confirmation by the Grand Court; see 1.4 Distributions and Return of Capital);
• transfer by way of continuation (by special resolution);
• approval of a merger or consolidation (by special resolution and any further approval required by the articles, save for certain parent–subsidiary mergers); and
• voluntary winding up (by special resolution).

The articles may also require shareholder approval for certain matters.

Information Rights and Proxies

Shareholders are entitled under the Companies Act to receive a copy of the company’s memorandum and articles of association on request. The articles typically also entitle shareholders to appoint a proxy to attend and vote at general meetings on their behalf. Cayman Islands law does not confer broad statutory inspection rights on shareholders of exempted companies, and access to corporate records is generally governed by the company’s articles of association, any shareholders’ agreement and, in certain circumstances, the supervisory jurisdiction of the Grand Court.

Remedies

Shareholders in the Cayman Islands have access to statutory and equitable remedies. These include bringing a derivative action on behalf of the company (subject to the requirements set by the courts), a personal right to sue where the directors have exercised their powers for an improper purpose and petitioning for the company to be wound up on just and equitable grounds. On such a petition, the Grand Court may instead make alternative orders under the Companies Act, such as ordering the purchase of a shareholder’s shares or regulating the company’s future affairs. In a merger, dissenting shareholders may exercise statutory dissent rights to receive the fair value of their shares, as determined by the Grand Court if not agreed.

Typical Provisions

Shareholders’ agreements are widely used in the Cayman Islands to supplement the articles of association and regulate the relationship between shareholders. Common provisions include:

• restrictions on share transfers (including rights of first refusal and permitted transfer provisions);
• drag-along and tag-along rights;
• board appointment rights;
• information and reporting rights; and
• lists of reserved matters requiring the consent of specified shareholders or a qualified majority.

Accession and Enforceability

New shareholders are typically required to accede to the shareholders’ agreement by executing a deed of accession (or another form of accession specified in the agreement), which binds them to the terms of the agreement as if they were an original party. Shareholders’ agreements are contractual in nature and are enforceable through the usual contractual remedies, including damages and, in appropriate cases, specific performance. They are not typically filed with the Registrar and remain confidential as between the parties.

Conforming the Articles

It is considered best practice to ensure that the articles of association are conformed to the shareholders’ agreement so that the two documents work together consistently. Where there is a conflict, the articles will generally prevail as a matter of company law, although the shareholders’ agreement may give rise to contractual remedies as between the parties for any breach. Careful drafting at the outset can help minimise the risk of inconsistency.

A shareholders’ agreement cannot fetter the exercise of directors’ fiduciary duties under Cayman Islands law. Accordingly, while shareholders may agree governance and consent arrangements, directors must continue to act in accordance with their statutory and fiduciary duties.

Dispute Resolution

Disputes arising in the shareholder context may be resolved through a range of mechanisms, including:

• derivative actions;
• just and equitable winding-up petitions; and
• contractual claims under the shareholders’ agreement.

The availability of each remedy will depend on the nature of the complaint and the terms of the relevant documents. Many shareholders’ agreements include dispute resolution clauses providing for arbitration or mediation as an alternative to court proceedings.

Statutory Mergers and Consolidations

Cayman Islands companies limited by shares and LLCs may merge or consolidate with one another, and cross-border mergers and consolidations with overseas companies and foreign entities are permitted, subject to compliance with the relevant Cayman Islands legislation (being the Companies Act and the Limited Liability Companies Act) and any applicable foreign law requirements. Cayman Islands SPCs cannot participate as constituent entities in a statutory merger or consolidation. There is no statutory merger mechanism that applies to ELPs.

Merger Procedure

The directors of each constituent company must approve a written plan of merger setting out the terms and conditions of the transaction. This includes:

• the manner of converting shares or membership interests in the constituent entities into shares, interests or other consideration in the surviving entity;
• any rights or benefits given to the directors or managers; and
• the effective date.

The plan must then be authorised by the shareholders of each company by special resolution and such other authorisation, if any, as may be specified in the articles (or, in the case of LLCs, by special resolution of the members, being a two-thirds majority unless the LLC agreement provides otherwise). A shareholder resolution is not required for a merger between the parent company and its subsidiary where the parent holds shares carrying at least 90% of the votes at a general meeting of the subsidiary.

A director of each constituent company must give a declaration covering:

• the solvency of each constituent company and the surviving or consolidated company;
• that no petition or other similar proceeding for winding up has been filed and no receiver or similar officer has been appointed;
• that all required fees have been paid; and
• a statement of the assets and liabilities of the constituent company as at the latest practicable date before the declaration.

In a merger involving an overseas entity, a further declaration is required that the merger is bona fide and not intended to defraud unsecured creditors.

The plan of merger and supporting documents are then filed with the Registrar of Companies, and a certificate of merger is issued upon registration. The merger takes effect on registration or on a later date specified in the plan, which may be no more than 90 days after registration. A copy of the certificate and plan must be given to members and creditors, and notice of the merger must be published in the Cayman Islands Gazette. The consent of each holder of a fixed or floating security interest over a constituent company is a statutory requirement, whatever the terms of the security documents. The Grand Court may waive this requirement on application.

Dissenting Shareholders

The Companies Act gives shareholders a statutory right to dissent from the merger or consolidation of a Cayman Islands company, and to be paid an agreed or judicially determined fair value for their shares instead of the merger consideration being offered by the merging company. These rights and the associated consideration provide an alternative remedy to address claims made by dissenting shareholders, although this process does not prevent the successful completion of a merger transaction.

Dissenters’ rights are not available for any class of shares for which an open market is maintained on a recognised stock exchange or recognised interdealer quotation system at the end of the period for giving notice of an election to dissent. This exception applies only where the consideration is shares or depositary receipts of a surviving or consolidated company, or of another listed company (although cash may be paid in lieu of fractional shares).

The dissent procedure is subject to strict procedural requirements. A dissenting shareholder must give the company written objection to the merger before the vote, including a statement that the shareholder proposes to demand payment for their shares if the merger is authorised. Within 20 days after the company gives notice that the merger has been authorised, the shareholder must give written notice of election to dissent, stating their name and address, the number and classes of shares concerned and a demand for payment of fair value. The company must then make a written offer to purchase the shares at the price it considers to be fair value. If no agreement is reached within 30 days, the company must (and the dissenting shareholder may) petition the Grand Court within the following 20 days to determine fair value. Failure to comply with these requirements may result in the loss of the right to dissent.

Dissenters’ rights do not apply in respect of a scheme of arrangement.

Schemes of Arrangement

As an alternative to a statutory merger, a company may effect a reorganisation by way of a scheme of arrangement under the Companies Act. A scheme is a court-supervised process. A shareholders’ scheme requires the approval of at least 75% in value of the shareholders (or each relevant class) present and voting, in person or by proxy, at a meeting convened by order of the Grand Court. A creditor scheme requires the approval of a majority in number representing 75% in value of the creditors (or each relevant class of creditors) present and voting. The scheme must then be sanctioned by the Grand Court. Schemes are flexible and can be used to achieve a wide range of outcomes, including compromises with creditors, restructurings and amalgamations. Creditor schemes may also be promoted in conjunction with the restructuring officer regime.

Compulsory Acquisition of Minority Shares

The Companies Act also provides a compulsory acquisition (squeeze-out) mechanism. Where a takeover offer has been approved by the holders of at least 90% in value of the shares to which it relates within four months of the offer, the offeror may, within the following two months, give notice to the remaining shareholders that it wishes to compulsorily acquire their shares on the same terms. A dissenting shareholder may apply to the Grand Court within one month of the notice.

Regulated Entities

Where a constituent entity is regulated by CIMA, prior notification to, or consent from, CIMA may be required for a merger transaction depending on the nature of the regulated business and the applicable regulatory legislation.

Regulatory Framework

CIMA is the primary regulator of financial services in the Cayman Islands. Key statutes governing investment funds and securities activities include the following:

• Mutual Funds Act;
• Private Funds Act; and
• Securities Investment Business Act.

CIMA is responsible for licensing, registering and supervising entities carrying on regulated activities in or from the Cayman Islands.

The Cayman Islands Stock Exchange

The CSX is the jurisdiction’s primary stock exchange and provides a listing facility for equity securities, debt instruments and investment funds. Entities seeking a listing on the CSX must comply with the CSX Listing Rules, which impose requirements regarding prospectus content, ongoing disclosure and corporate governance. The CSX is recognised by international regulatory bodies and its listings are accepted for the purposes of various tax and regulatory regimes.

There is no general prospectus registration regime applicable to private placements of securities in the Cayman Islands. Securities may generally be offered to sophisticated, institutional or other investors without the filing or approval of a prospectus, provided the offering does not constitute a public offering in the Cayman Islands.

Listed entities on the CSX are subject to continuous disclosure obligations under the CSX Listing Rules, including:

• timely disclosure of price-sensitive information;
• publication of annual and interim financial statements; and
• notification of material transactions and related-party transactions.

Unregulated entities are not subject to any general continuous disclosure regime, although regulated funds are required to make periodic filings and reports to CIMA.

The Securities Investment Business Act creates criminal offences of insider dealing and doing anything to create a false or misleading appearance of active trading in listed securities or in respect of the market for, or the price of, any such securities (market manipulation). The relevant provisions are generally limited to dealings in securities listed on the CSX. A person convicted of these offences may be subject to fines and/or imprisonment.

Entities listed on the CSX are subject to the CSX Listing Rules, which, in line with the above, include provisions relating to dealings by directors and insiders.

Cayman Islands entities that are listed or traded on overseas exchanges may also be subject to the insider trading and market abuse regimes of those jurisdictions.

There is no general shareholder disclosure regime in the Cayman Islands. The Cayman Islands operates a beneficial ownership transparency regime (see 1.5 Control Person Reporting), but the information held is not generally accessible to the public.

Companies listed on the CSX may be subject to disclosure requirements under the CSX Listing Rules in relation to significant shareholders. Cayman Islands entities that are listed or traded on overseas exchanges will typically be subject to the shareholder disclosure requirements of those jurisdictions.

Under the Whistleblower Protection Act, employees in the Cayman Islands may make disclosures of improper conduct to the Cayman Islands Ombudsman.

There is no general statutory requirement for Cayman Islands companies to implement compliance programmes or internal control systems. However, entities regulated by CIMA must comply with various regulatory measures that impose requirements in relation to matters such as corporate governance frameworks and the maintenance of adequate systems and controls, including internal compliance and risk management functions, as part of their ongoing regulatory obligations.

Anti-money laundering legislation (discussed further in 9.2 Anti-Money Laundering, Sanctions, and Corruption) requires entities conducting relevant financial business to identify, assess and understand their money laundering, terrorist financing and proliferation financing risks and to implement and maintain risk-based procedures covering specified matters. Entities subject to overseas regulatory requirements must comply with the internal control and whistle-blower requirements of those regimes.

Principal Laws and Forms of Security

Secured transactions in the Cayman Islands are governed by a combination of common law, equitable principles and relevant Cayman Islands legislation. Where a particular issue has not been considered by the Cayman Islands courts, decisions of the English courts on common law and equitable principles are highly persuasive in, although not binding on, the Cayman Islands courts.

Cayman Islands law recognises a broad range of security interests, including legal and equitable mortgages and charges, fixed and floating charges, assignments by way of security and, less commonly, pledges and liens. The appropriate form of security interest depends principally on the nature and location of the secured asset and the governing law of the underlying obligations being secured.

Perfection and Registration

Aside from certain specific asset classes, such as Cayman Islands registered intellectual property, land situated in the Cayman Islands and Cayman Islands registered ships and aircraft, there is no central public registry for security interests granted by Cayman Islands entities. Specific rules for perfecting security over LLC and ELP interests are also discussed below.

Under the Companies Act, a Cayman Islands company is required to maintain a register of mortgages and charges at its registered office in the Cayman Islands, recording security interests over its property. Failure to make the required entries may result in financial penalties for the company and its directors but does not invalidate the security interest. The register is not a public register, although it is open to inspection by creditors and members of the company at all reasonable times.

A similar requirement applies to LLCs under the Limited Liability Companies Act. Where the general partner is a Cayman Islands company, any security interests granted by the ELP over its assets would typically be recorded in the register of mortgages and charges of the general partner (which holds the assets of the partnership on statutory trust).

Security Over Partnership and LLC Interests

Specific statutory rules apply to security over interests in an ELP or LLC. Notice of the security should be served on the ELP (through its general partner) or the LLC at its registered office, and the security is then recorded in the entity’s register of security interests. Priority between competing security interests over the same partnership or LLC interest is generally determined by the order in which notice is received, so serving notice promptly is an important practical step.

Priority

As a general matter and save for the specific asset classes mentioned above and below, priority is determined by Cayman Islands common law and equitable principles rather than by registration in a central security registry. A security interest, whether legal or equitable, will generally rank behind an earlier legal interest or an earlier perfected equitable interest in the same asset, although priority for some security interests depends on the order in which notice is given (see below). An equitable security interest may also rank behind a later legal interest acquired by a bona fide purchaser for value without notice. These principles apply only where the competing equities are otherwise equal, and a party may lose priority through, for example, fraud or negligence.

For security over debts and other contractual rights, the applicable priority and perfection rules will generally depend on the governing law of the relevant debt or contractual right. Where Cayman Islands law applies, priority between competing assignees or chargees will generally be determined by the order in which notice is given to the relevant debtor or obligor, applying the rule in Dearle v Hall, subject to applicable exceptions. Prompt notice can therefore be an important perfection and priority step in Cayman Islands financing transactions.

Enforcement

Enforcement depends on the type of asset, the terms of the security document and its governing law. Cayman Islands security documents typically include certain “self-help” remedies allowing a secured party to enforce its security without a court order and may also include a power of sale and the right to appoint a receiver.

The Cayman Islands courts would not necessarily recognise or enforce foreclosure (being the secured party’s assumption of beneficial ownership of the secured asset and the extinction of the security provider’s equity of redemption) without a court order obtained in foreclosure proceedings. This applies only to foreclosure under mortgages and does not affect the exercise of a power of sale under a mortgage or charge.

Subject to the foregoing, a secured creditor may generally enforce its security without the leave of the Cayman Islands court and without reference to the liquidator. The restructuring officer regime imposes a stay on proceedings but makes specific provision for enforcement of creditors’ security.

Preferential debts rank ahead of floating charge holders to the extent the assets available to general creditors are insufficient. It is also possible under certain circumstances for a transaction (including the grant of a security interest) to be challenged by a liquidator as, for example, a voidable preference, fraudulent trading or a fraudulent disposition.

The Cayman Islands courts will generally (i) recognise validly granted and perfected foreign law governed security interests duly granted by a Cayman Islands entity and (ii) uphold a choice of foreign law in a security document on the basis that it has been made in good faith and will be regarded as valid and binding in the courts of the relevant jurisdiction. A final and conclusive foreign money judgment can generally be enforced at common law by bringing a claim on the judgment debt in the Grand Court of the Cayman Islands, without the merits being reconsidered, subject to limited exceptions (for example, on public policy grounds).

Stamp Duty

Stamp duty is generally payable only if a security document is executed in, or subsequently brought into, the Cayman Islands, or produced before a Cayman Islands court. The amount payable depends on the nature of the document and the secured asset and is generally nominal where the secured asset is not located in, or governed by the laws of, the Cayman Islands.

Acquisition Financing and Security Packages

In acquisition financings, Cayman Islands entities usually appear as borrowers, guarantors and/or security providers, typically in the form of exempted companies, LLCs or ELPs.

A typical security package can include security over shares or other equity interests in the Cayman Islands entity, bank accounts, intercompany receivables and contractual rights. The main finance documents are typically governed by New York or English law, with Cayman Islands law governed security, foreign-law governed security or a combination of both taken over any Cayman Islands law governed or domiciled assets.

Guarantees and Corporate Benefit

As noted in 1.4 Distributions and Return of Capital, there is no statutory prohibition on a Cayman Islands company giving financial assistance for the acquisition of its own shares, so upstream and cross-stream guarantees and security interests are commonly given by Cayman Islands targets and holding vehicles. The principal considerations are the entity’s capacity and the authority of its directors under its constitutional documents, and the directors’ fiduciary duty to act in the best interests of the company. In practice, secured parties will expect board resolutions recording the corporate benefit to the company and, where appropriate (particularly for upstream guarantees), shareholder resolutions approving the transaction.

Intercreditor and Subordination Arrangements

Intercreditor and subordination agreements in acquisition financings are typically governed by the law governing the finance documents (usually New York or English law). Cayman Islands law gives statutory recognition to contractual subordination: under the Companies Act, the distribution of a company’s property in a liquidation takes account of the rights of secured and preferred creditors, any subordination agreement, and contractual set-off and netting arrangements.

Recent Legislative Changes

The Companies (Amendment) Act 2024, which came into force on 1 January 2026, introduced an “out of court” capital reduction procedure (see 1.4 Distributions and Return of Capital) and new continuation and entity conversion mechanisms. These amendments primarily concern Cayman Islands corporate procedures and do not alter the framework applicable to the creation, perfection, priority or enforcement of security interests.

Governing Principles

Cayman Islands contract law is based on English common law principles. A valid and enforceable contract requires:

• offer;
• acceptance;
• consideration (or, in the case of a deed, execution as a deed);
• certainty of terms; and
• an intention to create legal relations.

The courts generally give effect to the terms agreed by the parties, subject to standard common law doctrines such as:

• misrepresentation;
• duress;
• undue influence; and
• illegality.

Electronic Signatures

Electronic signatures are generally valid and enforceable under the Electronic Transactions Act. In practice, this means most commercial contracts can be validly signed electronically, subject to certain limited exceptions.

Execution of Deeds

A deed may be executed by a Cayman Islands company under its common seal (if any) or otherwise in accordance with Cayman Islands law. Deeds are generally enforceable without consideration and are subject to a 12-year limitation period. They are commonly used for powers of attorney, releases, guarantees and indemnities, and other instruments intended to be binding without consideration.

Third-Party Rights

The Contracts (Rights of Third Parties) Act allows a person who is not a party to a contract to enforce a term of that contract, but only where the contract expressly provides that the third party may do so. If the parties wish third parties to have enforceable rights, the contract should say so clearly.

Termination

A contract may be terminated in accordance with its terms (eg, when a fixed term expires, when a specified event occurs or when a party exercises a contractual termination right). At common law, the innocent party may also terminate for a repudiatory breach, that is to say, a breach that goes to the root of the contract, or a breach of a condition. A contract may also be discharged in some circumstances by frustration, where an unforeseen event makes performance impossible or radically different from what the parties intended.

Remedies

The primary remedy for breach of contract is damages, calculated to put the innocent party in the position it would have been in had the contract been performed. In appropriate cases, the court may also grant equitable remedies such as specific performance or an injunction. In some circumstances interim relief may be available pending a final determination of the claim.

Liquidated damages clauses are generally enforceable unless they impose a detriment out of all proportion to the innocent party’s legitimate interest in performance. The limitation period for a breach of contract claim is six years from the date of breach (or 12 years for a deed).

The Cayman Islands has its own registration system for trade marks under the Trade Marks Act, and registered designs and patents granted in the UK (and certain other jurisdictions) can be extended to the Cayman Islands under the Patents and Trade Marks Act and the Design Rights Registration Act.

Copyright protection is available by virtue of a slightly modified version of Part 1 of the Copyright, Designs and Patents Act 1988 having been extended from the UK to the Cayman Islands by Order in Council. In commercial transactions, intellectual property rights are typically dealt with by way of contractual licence, assignment or transfer provisions.

Although intellectual property rights do not frequently come before the courts in the Cayman Islands, the law is clear that such rights will be respected, and the full range of financial and equitable remedies is available in consequence of any infringement. By the same token, there is no reason to consider that contractual provisions defining the ownership of intellectual property generated in the course of a commercial relationship would not be upheld in ordinary circumstances.

The Cayman Islands economic substance regime (see 9.5 Other Regulatory Compliance Requirements) is designed to ensure that entities earning income from certain geographically mobile activities in the Cayman Islands have real economic substance in the Cayman Islands. Intellectual property business is one of these “relevant activities” and so the regime may be relevant to Cayman Islands entities that hold or exploit intellectual property assets.

A relevant entity carrying on intellectual property business must satisfy the economic substance test in the Cayman Islands (including conducting core income-generating activities in, and being directed and managed in, the Cayman Islands) and make required filings with the Cayman Islands Tax Information Authority. Additional requirements apply to “high risk” intellectual property business, where the entity is presumed to fail the economic substance test unless it can rebut that presumption.

The Cayman Islands does not have a comprehensive consumer protection statute. Consumer transactions are governed mainly by common law, including the law of contract and tort (for example, claims for misrepresentation). Certain sector-specific protections exist, such as in insurance and financial services.

The absence of a general consumer protection regime reflects the predominantly business-to-business nature of commercial activity in the Cayman Islands, though this position is likely to continue to evolve in line with the growth of the domestic economy. A draft Consumer Protection and Guarantees Bill was gazetted in 2023 but as yet has not found its way into law.

The Cayman Islands does not have a general competition law or merger control regime. There is no requirement to notify or obtain approval from a competition authority for mergers, acquisitions or other business combinations, although the Utility Regulation and Competition Office (OfReg) has competition powers in regulated sectors such as telecommunications, energy and water.

Outside those regulated sectors, there is no general prohibition on anti-competitive agreements, abuse of dominance or cartel activity under Cayman Islands law, although common law restraint of trade principles may make unreasonable restrictive covenants unenforceable.

General Position

Other than in respect of businesses carried on within the Cayman Islands (as opposed to businesses conducted from the Cayman Islands with persons outside the jurisdiction), there are no general foreign investment restrictions in the Cayman Islands. Subject to the above, foreign nationals and foreign-owned entities may freely own Cayman Islands entities without government approval.

Licensing Requirements

There is no general foreign investment or national security screening regime. However, a business carried on within the Cayman Islands (rather than offshore) generally requires a trade and business licence and, where foreign-owned, may require a licence under the Local Companies (Control) Act. Regulated activities such as banking, insurance, funds and securities business also require registration with or a licence from CIMA.

Special Economic Zones

The CEC and the Cayman Tech City operate special economic zones in the Cayman Islands, offering dedicated infrastructure, streamlined immigration processes and other concessions for companies in the technology, media, maritime services, commodities and academic research sectors. Companies operating within the CEC are classified as SEZCs and are restricted to conducting activities directed at clients and counterparties outside the Cayman Islands.

Government Concessions

The Cayman Islands government offers various incentives to attract foreign investment, including:

• the absence of direct taxation;
• a stable regulatory environment; and
• a well-developed legal and financial services infrastructure.

There is no exchange control legislation, and funds may be freely remitted into and out of the jurisdiction in any currency.

Data Protection Act

The Data Protection Act is the principal data protection legislation in the Cayman Islands. The Act applies to data controllers established in the Cayman Islands, and to data controllers established elsewhere that process personal data in the Cayman Islands (otherwise than for the purposes of transit), and imposes obligations regarding the collection, use and disclosure of personal data. Data controllers must comply with eight data protection principles which, amongst other things, require a data controller to ensure that personal data is processed fairly and on a lawful basis (consent being one of several available bases), is accurate, is not kept for longer than is necessary and is only transferred internationally in compliance with the requirements of the Data Protection Act. A data controller must ensure that the principles are met by anyone processing data on its behalf.

Personal data may not be transferred outside the Cayman Islands unless the destination country or territory ensures an adequate level of protection for the rights and freedoms of data subjects in relation to the processing of personal data, or an exemption applies (eg, the data subject has given consent or the transfer is subject to approved contractual clauses). There are no general data localisation requirements, although regulated entities should also consider relevant CIMA regulatory measures, including CIMA’s rules and guidance on outsourcing and cybersecurity.

Breach Notification

In the event of a personal data breach, data controllers are generally required to notify the Ombudsman and affected data subjects within five calendar days of becoming aware of the breach. The notification must include:

• details of the nature and consequences of the breach;
• measures taken or proposed to address the breach; and
• measures recommended to mitigate the possible adverse effects of the breach.

Enforcement

The Ombudsman is the supervisory authority responsible for the enforcement of the Data Protection Act and has the power to investigate complaints, issue enforcement notices and impose monetary penalties. Certain breaches of the Data Protection Act are also criminal offences. Data subjects have the following rights:

• to be informed about the purposes for which their personal data is processed;
• to access their personal data;
• to request correction of inaccurate data;
• to restrict or request the cessation of processing of their data;
• to stop direct marketing; and
• to complain to the Ombudsman about a data controller’s handling of their data.

Anti-Money Laundering

Entities carrying on “relevant financial business” in the Cayman Islands are subject to comprehensive anti-money laundering obligations under the following legislation and related guidance:

• Anti-Money Laundering Regulations;
• Proceeds of Crime Act;
• Terrorism Act; and
• Proliferation Financing (Prohibition) Act.

These entities must appoint:

• an Anti-Money Laundering Compliance Officer;
• a Money Laundering Reporting Officer (MLRO); and
• a Deputy Money Laundering Reporting Officer.

These entities must also adopt risk-based policies and procedures covering specified matters, conduct customer due diligence, maintain records and ensure that knowledge or suspicion of criminal conduct is reported to the entity’s MLRO and, where the MLRO determines it appropriate, to the Financial Reporting Authority (FRA). Compliance is supervised by CIMA or, for non-financial businesses, the relevant designated supervisory authority. Administrative fines may be imposed for breaches, and serious breaches are also criminal offences. The anti-money laundering regime is broadly aligned with the recommendations of the Financial Action Task Force. Certain regulated entities are subject to additional CIMA regulatory measures regarding anti-money laundering and sanctions compliance.

More generally, all persons in the Cayman Islands are required to report knowledge or suspicion of criminal conduct (either to the MLRO, where applicable, or to the FRA) where the information comes to their attention in the course of their trade, profession, business or employment.

Sanctions

United Kingdom sanctions legislation is extended to the Cayman Islands, with modifications, by Orders in Council. Sanctions compliance is mandatory for all persons and entities in the Cayman Islands, and it is a criminal offence to deal with the funds or economic resources of designated persons or to make funds or economic resources available to or for the benefit of designated persons.

The FRA is the competent authority for financial sanctions, and persons must report to it any knowledge or suspicion that a person is designated or that a breach has occurred, as well as any frozen assets. Breaches may result in fines and/or imprisonment. Financial services businesses are expected to maintain screening procedures to ensure ongoing compliance with applicable sanctions regimes.

Anti-Corruption

Bribery and corruption are criminal offences under the Anti-Corruption Act, which covers the bribery of public officials (including foreign public officials) and related offences, and is enforced by the Anti-Corruption Commission. The Cayman Islands also participates in relevant international anti-corruption conventions. Businesses with links to other jurisdictions with extraterritorial anti-corruption laws should ensure that their compliance programmes also address those requirements.

Environmental regulation in the Cayman Islands is governed by the National Conservation Act and related legislation, which provides for the protection of the natural environment and the regulation of development activities.

Health and safety in the workplace is addressed through the Labour Act and related regulations, which impose duties on employers regarding working conditions, workplace safety and accident reporting.

Industry-specific regulation applies to certain sectors such as banking (Banks and Trust Companies Act), insurance (Insurance Act) and investment funds (Mutual Funds Act and Private Funds Act), with CIMA acting as the primary regulatory body for the financial services sector.

Outside financial services, businesses are regulated by the Trade and Business Licensing Act and the Local Companies (Control) Act, which create a licensing and review system designed to ensure that local interests are appropriately protected. Foreign-owned businesses are required to satisfy a number of broad public interest based tests if they wish to trade with customers located within the Cayman Islands. Businesses located within the Cayman Islands but whose customer base is located elsewhere fall outside this regime. In general, where a business is locally licensed, regulatory approvals will be required before any transfer of shares or ownership can be effected.

There is currently no specific legislation regulating the development or use of artificial intelligence (AI) in the Cayman Islands. Existing laws, including the Data Protection Act, the common law of contract and tort, and regulatory requirements administered by CIMA, apply to AI-related activities where relevant. Accordingly, organisations deploying AI remain subject to existing obligations relating to data protection, confidentiality, governance and sector-specific regulation.

As AI adoption increases, developments in large international markets and emerging international frameworks, including those developed by the Organisation for Economic Co-operation and Development (OECD) and the European Union, will likely influence future policy and legislative updates in the Cayman Islands.

Economic Substance

The International Tax Co-operation (Economic Substance) Act requires entities carrying on “relevant activities” in the Cayman Islands to maintain adequate economic substance in the jurisdiction. Relevant activities include:

• holding company business;
• intellectual property business;
• financing and leasing;
• fund management;
• banking;
• insurance;
• shipping;
• distribution and service centre business; and
• headquarters business.

Relevant entities must file an annual economic substance notification and, if applicable, an economic substance return demonstrating compliance with the substance requirements.

FATCA, CRS and CARF

The Cayman Islands has implemented both FATCA and the OECD CRS through local legislation. Financial institutions in the Cayman Islands are required to identify and report information on financial accounts held by US persons (under FATCA) and by tax residents of participating CRS jurisdictions (under CRS) to the Cayman Islands Tax Information Authority, which exchanges the information with the relevant foreign tax authorities. Registration and reporting obligations apply on an annual basis. The Cayman Islands has also implemented the Crypto-Asset Reporting Framework (CARF) under which Reporting Crypto-Asset Service Providers are required to register with, and identify and report user and transaction information to, the Cayman Islands Tax Information Authority for exchange with relevant tax authorities.

Beneficial Ownership Transparency

The Cayman Islands has implemented a beneficial ownership transparency regime under which in-scope legal persons (which include Cayman Islands companies, LLCs and partnerships but exclude trusts) must identify their registrable beneficial owners and, through their corporate services provider, establish and maintain a register containing adequate, accurate and current beneficial ownership information. Please see 1.5 Control Person Reporting for more information.

Principal Legislation

Employment relationships in the Cayman Islands are primarily governed by the Labour Act, which sets out minimum standards for terms and conditions of employment, including provisions relating to:

• working hours;
• rest periods;
• public holidays;
• annual leave;
• sick leave; and
• maternity leave.

The Labour Act applies to most employees working in the Cayman Islands private sector, subject to certain very limited exceptions.

Work Permits and Immigration

Non-Caymanian nationals generally require a work permit to be lawfully employed in the Cayman Islands. Work permits are issued under the Caymanian Protection Act and are subject to various requirements, including that the employer demonstrate that no suitably qualified Caymanian is available to fill the position. The work permit system is administered by the Workforce Opportunities and Residency Cayman department. Employers must comply with the Caymanian Protection Act in relation to the recruitment, employment and termination of non-Caymanian employees.

Pensions and Health Insurance

Employers are required to provide pension contributions for their employees under the National Pensions Act. The minimum employer contribution is 5% of the employee’s earnings up to KYD87,000 (approximately USD106,000) (with a matching 5% contribution from the employee). Employers are also required to provide health insurance for their employees under the Health Insurance Act, although a portion of that cost can be recouped from the employee. These obligations apply to all employers in the Cayman Islands and form a significant part of the employment cost base.

Termination of Employment

The Labour Act requires that notice be given prior to the termination of employment in most cases, other than in circumstances of misconduct or inadequate performance; “at will” employment is not permitted in the Cayman Islands. Employers may be required to pay severance in certain circumstances, including redundancy. Unfair dismissal claims may be brought before the Labour Tribunal, which has jurisdiction to award compensation, although not to order reinstatement. Whilst the courts do have jurisdiction over certain employment disputes, this category is limited, as the vast majority of claims fall within the scope of the Tribunal’s authority.

Executive Compensation

There are no statutory restrictions on executive compensation in the Cayman Islands. Remuneration packages are contractual and a matter of negotiation between the parties. They are typically set out in a service agreement or employment contract.

Equity-based compensation (including share options, restricted share awards and carried interest arrangements) is common. Cayman Islands companies that are listed on overseas exchanges may be subject to the compensation disclosure rules of those jurisdictions.

There is no direct taxation in the Cayman Islands, so any taxation aspects of executive compensation arrangements will be driven by any taxation rules of jurisdictions where the executives or the group are based.

Restrictive Covenants

Restrictive covenants are generally enforceable in the Cayman Islands to the extent that they are reasonable in scope, duration and geographical extent, among other factors. There is no specific restrictive covenant legislation; the enforceability of such provisions is determined by reference to English common law principles, which are highly persuasive in the Cayman Islands courts. A restrictive covenant that goes further than is reasonably necessary to protect the employer’s legitimate business interests is likely to be held void. Careful drafting is therefore essential to maximise enforceability and to ensure the effectiveness of a restraint.

No additional commentary is included for the purposes of this chapter.

No additional commentary is included for the purposes of this chapter.