Introduction of Cayman Foundation
Cayman Foundation company has features and flexibility that allow a company to retain separate legal personality and limited liability while functioning in a way similar to civil law foundation or common law trust. Foundation has a long history in civil law jurisdictions and their introduction was initially introduced for client who are uncomfortable transferring legal ownership of assets to a trustee. A foundation company is a body corporate with a separate legal personality.
Cayman Foundations are technically companies and Cayman’s Company Act applies to Cayman Foundations as modified by the Foundation Companies Acts.
1. Key features of Cayman Foundation:
(1) Separate legal personality:
Unlike a trust, a Cayman Foundation is itself a legal person and will transact with third parties in its own right, rather than through the trustee of a trust.
(2) Purposes:
Cayman Foundations may be formed for charitable or non-charitable purposes. Clients from common law jurisdictions frequently use foundation companies to hold higher-risk assets such as shares in family businesses and as part of family office and private trust company (PTC) structures.
(3) Founder:
A foundation company’s constitution can give any rights, powers or duties to its founder. Those rights, powers or duties includes:
(a) Appointing or removing the supervisors;(b) Appointing or removing the directors;
(c) Supervision of the management and operations;
(d) Adding or removing beneficiaries;
(e) Making distributions;
(f) Enforcement of duties;
(g) Calling of and attendance at the general meetings;
(h) Altering the constitution;
(4) Board of Directors:
The daily management of a foundation company, including the investment of the foundation company’s assets which is conducted by its board of directors.
(5) Supervisor:
A foundation company does not need to have a member or shareholder but it must have a supervisor. The supervisor may also be a director, although this would weaken the structure from an asset protection perspective if there is no separation of roles. Subject to any greater role provided by the constitution, a supervisor’s main function is to supervise the board of directors’ management of the foundation company.
(6) Beneficiaries:Cayman Foundations may have beneficiaries. Unless otherwise specified the beneficiaries will not have standing against the Cayman Foundation. Duties are owed only to the Foundation Company itself as opposed to beneficiaries, and rights can be enforced against only the company and not the directors.
(7) Flexibility:
the constitution of a Cayman Foundation can be supplemented by “Bylaws” which are not filed with the Registrar of Companies and can therefore remain private, affording the Cayman Foundation a degree of privacy in its operations coupled with further flexibility to set its own rules in relation to its structure and management.
(8) Trust legislation applies:
certain provisions of the Cayman Islands’ Trust Act are extended to apply to Cayman Foundations, including section 48 of the Trusts Act which allows fiduciaries to apply for the directions of the Cayman Court. This is a remedy which can be useful to protect fiduciaries when making significant decisions, for example when making a major distribution or undertaking.
2. Incorporation of Cayman Foundation Company:
Any new or existing company incorporated under the Companies Act (Revised) may apply to the Registrar of Companies to be a foundation company provided certain conditions have been met.
Foundation companies is an attractive alternative to trusts, particularly for clients in civil law jurisdictions where a trust may be unfamiliar or the tax treatment is uncertain and offers many of the features of a trust that make them ideal succession planning and asset protection vehicles.
A Foundation Company whose objects are to be carried out mainly outside the Cayman Islands may be incorporated as an exempted company, and not subject to any income, withholding or capital gains taxes in the Cayman Islands.
3. Uses of Cayman Foundations:
(1) Philanthropic purposes;
(2) An alternative to a trust for private wealth, charitable and commercial purposes;
(3) Private Trust Company (PTC);
(4) General partners of a partnership in an investment fund structure.
A Cayman Foundation can serve a similar function to a trust with assets being held for the benefit of beneficiaries on terms specified in the Foundations’ governing documents. The main difference from a trust is that the Cayman Foundation exists as a separate legal person, rather than being administered by the trustee, the Foundation is managed and administered by its board of directors. Cayman Foundation may act as a Private Trust Company whereas the Private Trust Company are commonly held in purpose trust structures (where the shares of the Private Trust Company are held by a professional trustee of a purpose trust), because Cayman Foundations can cease to have members there is no need for the Private Trust Company shares to be held in a purpose trust.
Reference: Cayman Islands’ Trust Act
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