Today we’re going to talk a little bit about foundation companies and how they fit into the business atmosphere of the Cayman Islands, what they are predominantly used for, incorporation of a foundation company and a general overview of what exactly they are.
What Exactly Is A “Foundation Company” In The Cayman Islands?
Simply put, a foundation company is an incorporation type that is unique to the Cayman Islands in particular. Operating like a common law trust or a civil law foundation – the foundation company has the flexibility and features that allow it to operate a separate legal personality whilst simultaneously offering limited liability benefits. For commercial entities – as well as private wealth set-ups – it offers a great deal of attractive incentives. Foundation companies are incorporated in such a way that it is a separate entity from the directors, company members and largely most people connected to the foundation in general. Moreover, there is well-established body of case law that shows/reaffirms/validates that these benefits exist both in the Cayman Islands – as well as in other offshore municipalities.
Who Uses This Type Of Framework?
Setting up a foundation company can be a very viable alternative for individuals possibly looking at setting up trusts. Specifically, individuals in civil law municipalities where trusts aren’t common (or wherein taxation is not readily defined) might discover that setting up a foundation company could be the best way to ensure asset protection and things such as succession planning for how things will move forward in the future. Folks coming from common law municipalities see advantages in foundation companies when they want to hold assets considered “high risk”. These could include, but aren’t necessarily limited to, family office holdings, private trust company holdings and things generally related to an existing “family business”. Foundation companies can, in effect, act as “ownerless vehicles” for commercial transactions, investment funds, etc. If you are a party that is looking for a protector or enforcer of a trust, a vehicle for crypto/coin operations or a special type of structure for financing this could be a good fit for you. Foundation companies also are used with great success for philanthropic purposes or for the aforementioned succession planning.
Incorporating Your Foundation Company
Relatively straightforward here once again. Any existing or recently formed company may apply to the Registrar of Companies to be a “foundation company” given that they meet certain conditions. These are as follows:
- The foundation company is limited by shares or by guarantee (with or without shared capital).
- The foundation company has a memo that states that it is a foundation company.
- The foundation company has a memo that describes its objects (which may include beneficiaries).
- The foundation company has a memo that provides (directly or by reference to its articles) for the disposal of surplus assets on winding up.
- The foundation company prohibits dividends or other distributions to members.
- The foundation company has adopted articles & has a secretary who is an individual that is licensed to provide company management services in the Cayman Islands.
Foundation Companies With Respect to Taxes
In general terms, and just for a base reference, a foundation company is not subject to any income, withholding or capital gains taxes in the Cayman Islands. Beneficiaries of a foundation company shall not be subjected to any income, capital gains or withholding taxes in the Cayman Islands. This is with respect to their interests. They will also not be subjected to any inheritance or estate taxes in the Cayman Islands. Also, if your foundation company is incorporated as an “exempted company” then you may apply for an undertaking that any law change to introduce taxes in the Cayman Islands will not apply to you for a period not exceeding thirty years from the date of approval of the foundation company application.
What Are The Fees Associated With Forming A Foundation Company?
Fees are not as exorbitant as you might thing. Each foundation company is obligated to pay an “annual companies registry fee” to the Registrar at the beginning of each year to the tune of CI$700. The secretary of the foundation company is also more than likely to be charged some form of an annual fee. Legal fees will also be levied depending on the nature and scope of your foundation company.
A Foundation Company’s Constitution
Oh yes, foundation companies have constitutions and they are important. The company’s constitution, for example, can grand anyone the right to be a member of the company. It can also restrict membership, memos permitting, provided it continues to have a “supervisor” (non-member) that has been given the right to attend and have voting rights in general meetings. When a foundation company has no members, however, the company will not be able to issue shares or bring in new members unless the constitution specifically allows for this. A foundation company’s constitution may give rights and powers to supervisors, members, directors, and founders. In general they can do several things. These are generally accepted as follows:
- Admitting, appointing, removing members, supervisors and directors.
- Making and amending any bylaws such as the supervision of the foundation company’s management and operations and duties.
- Conducting the foundation company’s general meetings and voting on resolutions.
- Changing or altering the constitution and winding up (closing) and disposing of the foundation company’s assets.
Foundation Companies can be an attractive option for various types of clients in the Cayman Islands. As always, the disclaimer reads as such – make sure to talk to a knowledgeable expert or attorney before you engage in this type of corporate structuring.