Under the Companies Law 2020, a corporation that conducts the majority of its operations outside of the islands is considered exempt (Revision). An exemption company is the most common type of offshore corporation in the Cayman Islands.
Restrictions
An exempted company is not permitted to do business with any person, firm, or corporation unless it obtains a license to do so under any relevant legislation. If you register an exempted business without the Financial Secretary’s approval, you cannot own property also.
Constitutions of exempted companies in the Cayman Islands
The rights and responsibilities of a company’s members are outlined in the company constitution, a legal document that outlines the permissible operations of the business. An exempt corporation’s constitution is comprised of the articles of association and the memorandum of association (Articles).
Memorandum of association
The memorandum must contain the following information:
- The name of the business
- Original subscribers’ names
- The goal of the business
- Address of the registered office
- Limited responsibility for shareholders is declared
- Amount of authorized shares (in any currency)
Articles of association
The articles of association include:
- The internal norms and regulations
- Information about shares, including their issuance, kinds, transfer, buyback, and redemption procedures
- Meetings of shareholders
- Voting rights of shareholders
- Payments of dividends
- The ability of shareholders to vote
- Appointment of officers and directors, as well as information on their responsibilities, meetings, and salaries
- Winding-up
Licensed office
A registered office, often referred to as a local premise, is required for an exempted business to have. This office must be provided by a service provider who is authorized to do business there. Each firm is required to inform the Registrar of its registered office and make that information public. You must submit a formal resolution to the Registrar and present a certified copy of the new address within 30 days after the resolution’s passage if you wish to modify your registered office address.
Directors
A firm that is free from taxation must have at least one director who is not needed to live in the Cayman Islands and may do so in any nation. The first directors are chosen by the shareholders. After then, directors are often nominated and/or dismissed in line with the Articles’ requirements. In most cases, the directors are in charge of the company’s management, which includes the following obligations:
- Act in the best interests of the members and the company as a whole;
- Act with proper intent and fairness;
- Do not abuse director power;
- Do not use the position of director to earn illicit profits;
- Avoid internal and external conflicts; and
- Manage the company with care and competence.
The directors may be held personally liable to the corporation in the case of a duty violation.
Equity shares
This is the most shares that your exempt business may issue, as determined by a shareholder’s customary resolution. In Cayman, there are no thin capitalization rules, and exempted companies are not required to have multiple shareholders or issue multiple shares. Under the terms of the Articles, an exempted business may issue fractional shares, allowing the share capital to be divided into classes with different rights.
Dividends
An exempt company may pay dividends from earnings or its share premium account without the approval of its shareholders. Typically, dividend payments are approved by the board of directors through a written or in-person board meeting decision.
To form an exempt company, owners must keep the following registers:
Register of directors
This section contains the directors’ names, addresses, and the dates of their appointment, dismissal, or resignation. The directors’ register must be submitted for review to the Registrar.
Members must sign up.
This document contains information about stockholders and their specific shares. An exempted company that does not have a permit to do business in the Cayman Islands may keep its membership registration abroad.
Registers of Beneficial Owners (BOs)
The majority of exempted businesses are required to keep a list of BOs at their registered office.
Procedures for incorporation
To establish an exempt corporation, you must submit signed constitutional papers to the Registrar (i.e., Memorandum of Association and Articles). You must also submit a statement confirming that your company will conduct business outside of the Cayman Islands. It usually takes between 3-5 business days to register an exempted corporation.
Accounting A tax-exempt company is required to keep accurate accounting records that show all of its revenue, costs, assets, and liabilities. Although it is not necessary to keep the documents in the Cayman Islands, you must ensure that they are easily accessible in case the government or tax officials require them. Furthermore, neither audits nor the appointment of auditors is required.
Annual reporting is required.
In January, the corporation must submit an annual report to the Registrar detailing any changes to the M&A. The yearly file should include information on all operations and activities carried out away from the islands. In addition, the company must pay a yearly renewal fee in January for the following year.
Taxes
The Cayman Islands are one of the most well-known tax-free jurisdictions. Cayman Islands-exempted companies are not taxed on their income, capital gains, or withholding. Furthermore, shareholders are exempt from estate or inheritance taxes and are not required to pay taxes on their shares or dividends earned from those shares.
