The Cayman Islands Government recently amended and passed new legislation for Cayman Companies and Cayman Limited Liability Companies to create and maintain a register of beneficial ownership (“the Register”). The new legislation comes into effect 30 June 2017.
Cayman companies that qualify under the new legislation are required to engage their Cayman corporate service provider to establish and maintain the Register.
The information provided will not be available to the public. Cayman still maintains its stance on the importance of confidentiality.
Which entities are within scope?
Companies which are required to provide this information are companies incorporated or registered by way of continuation under the Companies Law (2016 Revision) and the Limited Liability Companies Law (2016):
- Ordinary Resident;
- Non-Resident Companies;
- Special Economic Zone Companies;
- Exempted Companies;
- Exempted duration Limited Duration Companies;
- Segregated Portfolio Companies;
- Limited Liability Companies (LLC).
Definition of a beneficial owner
A beneficial owner is a person for whose benefit the company was established and who has ultimate control over the company. A beneficial owner can be an individual or a legal entity.
Registrable beneficial owners with respect to a company generally:
a) holds directly or indirectly holds, in aggregate, more than 25% of the shares or membership interests;
b) directly or indirectly holds, in aggregate, more than 25% of the voting rights;
c) directly or indirectly holds, in aggregate, the right to appoint or remove the majority of directors or managers;
d) if no individual satisfies any of the conditions in (a) to (c) above, has the absolute and unconditional legal right to exercise, or actually exercises, significant influence or control over the In-Scope Entity, other than solely in the capacity of a director (or manager in the case of LLCs), professional advisor or professional manager;
e) otherwise, if no individual satisfies any of the conditions above, but the trustees of a trust or the members of another legal vehicle that is not a legal person (such as a general partnership) satisfy one of the conditions set out above in relation to an In-Scope Entity in their capacity as trustees or members, then such persons will be beneficial owners for the purposes of the Regime if such persons have the absolute and unconditional legal right to exercise, or actually exercise, significant influence or control over the activities of that trust or other vehicle, other than solely in the capacity of a director (or manager), professional advisor or professional manager.
All registrable beneficial owners are required to provide their particulars to the company for entry into the Register, except where the Competent Authority is satisfied, having considered an undertaking provided by a beneficial owner, that there are special reasons for an exemption from compliance with a notice. Special reasons are not identified in the legislation and appear to be discretionary.
If there are no registrable beneficial owners identified the company must note on the Register the words “no registrable person identified”.
Companies or LLCs (or their subsidiaries) which are exempted from keeping a Register are those which are:
a) listed on the Cayman Stock Exchange or one approved in Schedule 4 of the Companies Laws;
b) registered or holding a licence under a ‘regulatory law’ as defined in s. 2 of the Monetary Authority Law (2016 Revision);
c) managed, arranged, administered, operated or promoted by an approved person as a special purpose vehicle, private equity fund, collective investment scheme or investment fund;
d) a general partner of a vehicle, fund or scheme referred to in paragraph (c) that is managed, arranged, administered, operated or promoted by an approved person; or
e) exempted by the Regulations (which currently do not provide for any other exemptions).
This means that an investment fund which is licensed by or registered with the Cayman Islands Monetary Authority (‘CIMA’) is exempted along with any Cayman company which is registered as an Excluded Person under the Securities Investment Business Law 2015 Revision (‘SIBL’) (typically a Cayman investment manager). It also means that an investment fund which is managed by an Excluded Person under SIBL is also exempted even if the investment fund is not registered or licensed with CIMA. Further, given the scope of what is defined as an ‘approved person’, any investment fund which is managed by a non-Cayman manager which manager is regulated in the USA, EU or in any of the other countries listed in Schedule 3 of the Money Laundering Regulations (2015 Revision) or listed on a recognised stock exchange, will also be exempt.
For companies incorporated prior to 30 June 2017, the Cayman Islands government has stipulated a grace period of 1 year to enable existing companies to gather information and create a Register.
The worst case scenario could see a heavy penalty in the form of a severe fine or even criminal proceedings being imposed on the beneficial owners or the company who fail to comply.