A Cayman Islands Segregated Portfolio Company (SPC) is an exempted company with protected portfolios or cells. The Companies Law of the Cayman Islands of 1998 (Part XIV) was originally enacted to follow several other countries and tax havens which established Protective Cell Companies (PCC) for their insurance industries to protect insurance products and policyholders by separating them into individual accounts (cells). The risks and liabilities of one cell would be isolated from the other cells and the main corporate body.
The Cayman Islands amended their Companies Law in 2002 to expand from protecting just insurance companies into other industries. Mutual funds, securities, aircraft, shipping, and corporate platforms using multiple debt structures can all use the benefits of the SPC law.
Background
The Cayman Islands is a British Overseas Territory located in the Caribbean located near Jamaica and Cuba. Its political system is a parliamentary dependency under constitutional monarchy with England’s Queen Elizabeth II as its monarch. It has a democratically elected legislative assembly and a premier.
Benefits
A Cayman Islands Segregated Portfolio Company (SPC) enjoys the following benefits:
• 100% Ownership by Foreigners: A SPC can be totally owned by foreigners.
• No Taxation: Foreign owned SPC’s conducting business outside of the Cayman Islands pay no taxes at all.
• Privacy: Owners (shareholders and members) names are never part of any public records. The government’s records are not available to the public.
• Flexibility: SPC’s can be divided into separate portfolios which operate independently from each other. A variety of products, assets, clients, and investors can be separated into cells.
• One Owner: A minimum of one owner, member, or shareholder is required.
• One Director: Only one director is required for the main corporate body and for each cell.
• Lower Risks: Dividing assets, ownership, investors, and products into separate cells lowers the risk of liability if one cell becomes insolvent or is sued in a court of law.
• English: As a British Overseas Territory, English is the official language.
Segregated Portfolio Company (SPC) Name
As with every country, the Cayman Islands prohibits new companies from taking a name exactly alike or closely resembling an existing company’s name.
Every SPC must include the words “Segregated Portfolio Company” or its abbreviation “SPC” at the end of its name. When a SPC creates segregated portfolios each one must have a unique name and include the words “Segregated Portfolio” or initials “S.P.” or “SP” at the end of its name.
Incorporation
A SPC is incorporated by filing a Memorandum and its Articles of Association with the Registrar of Companies along with the application fee. SPC’s are first incorporated as exempted companies.
Registration
A SPC is registered by filing an application with the Registrar of Companies and paying the required fee. In addition, a written notice is filed furnishing the names of every segregated portfolio.
Existing companies can convert into a SPC by filing a declaration executed by a minimum of two company directors declaring the following:
1. List the assets and liabilities of the company within 3 months of the declaration;
2. If any pending transactions may affect the assets and/or liabilities before registration is completed;
3. How the company intends to operate;
4. Upon approval as a SPC, each segregated portfolio and the company will be solvent;
5. That at least 95% of the creditors with claims of at least $1,220 USD consent to the creation of segregated portfolios.
6. A special resolution authorizing the assets and liabilities transfer into segregated portfolios which lists every one.
If applicable, companies licensed by the CIMA must obtain written approval from the CIMA and attach it to the declaration.
Segregation of Assets
The SPC’s directors must create and maintain procedures to:
1. Segregate and maintain segregation of identifiable portfolio assets from the SPC’s general assets;
2. Segregate and maintain segregation of identifiable portfolio assets from the SPC’s other segregated portfolios;
3. Ensure that assets and liabilities are not comingled between segregated portfolios; or if transferred between segregated portfolios are done so at full value.
Separate accounts for each segregated portfolio must always be maintained and not just simple accounting practices of comingled assets.
Every segregated portfolio funds and other assets can only be used to satisfy liabilities and creditors directly associated with the portfolio. Segregated portfolio assets may never be used to satisfy debts and other liabilities of the SPC or for other segregated portfolios. Any authorized transfer between segregated portfolios and/or the SPC’s general fund must always be at full value.
Debts and other liabilities of a specific segregated portfolio may only affect that portfolio. If insufficient assets and funds exist in such portfolio to fully satisfy the liabilities, and only if the Articles of Association for the SPC allows, the liabilities may be satisfied from the SPC’s general funds. However, the inability of one segregated portfolio may never be satisfied from assets and funds from another segregated portfolio.
Shares
A minimum of only one shareholder is required.
The SPC has the option to issue shares in one or more series or classes for each segregated portfolio. In addition, the SPC may issue shares for its own company with proceeds only being included in the SPC’s general assets.
Dividends and other distributions may be paid for any of the segregated portfolios only from the segregated portfolio’s funds.
Director
A minimum of one director is required. The director can be from any country and reside outside of the Cayman Islands.
There is no requirement to appoint company officers.
Minimum Authorized Capital
There is no required minimum authorized capital or capital shares.
Contracts
Every contract involving a segregated portfolio must clear identify the specific portfolio as a party to the contract. Contracts specifically involving the SPC must clearly identify the SPC as a party and never imply that any of the segregated portfolios are involved.
A breach of this obligation by the SPC upon discovery by its directors must be remedied and all parties involved notified of the breach.
Dissolution
If the SPC is in the process of dissolving, the liquidator must deal with the segregated portfolios’ assets in accordance to the procedures established by their directors and the Articles of Association.
The Cayman Islands courts may appoint a receiver in respect to any segregated portfolio deemed insolvent and unable to fulfill its obligations and/or liabilities. The SPC, its directors, or any creditor may apply for a court order of receivership.
Jurisdiction
In order to avoid confusion with different jurisdictions regarding the rights of parties to contracts or liabilities associated with assets in other countries, it is recommended that all contracts pertain got assets held outside of the Cayman Islands specify jurisdiction to be established in the Cayman Islands.
Taxes
The Cayman Islands do not impose income taxes, corporation taxes, capital gains tax, gift tax, inheritance tax, wealth taxes, or any other tax to companies conducting offshore business. Dividends are not taxed and there are no withholding taxes of any kind.
Registered Agent and Office Address
The Cayman Islands requires every company to appoint a local registered agent and maintain a local office address.
Annual General Meetings
An annual general meeting of shareholders (if any) are required. The meetings can be held anywhere in the world.
Public Records
There is no public access to the government’s records. Shareholders’ (and members) names are never part of the government records.
Time for Registration
An exempted company to be registered as a SPC, or converted into one can expect that approval may take between 5 to 10 business days.
Shelf Companies
Shelf companies are available in the Cayman Islands.
Form a Cayman Islands Segregated Portfolio Company (SPC) Conclusion
A Cayman Islands Segregated Portfolio Company (SPC) enjoys the following benefits: 100% foreign owners, privacy, no taxes, one shareholder/member, one director, lower risks of liabilities, greater flexibility in conducting business, and English is the official language.
