On 19 October, the Cayman Islands Foundation Companies Law 2017 came into force.
Commonly known as the Foundation Law, the legislation introduces a novel form of vehicle into the Cayman Islands legal system.
Under the law, a foundation company can be established that has features and flexibility designed to allow it to function like a civil law foundation or common law trust.
Law firm Ogier, which operates in the Cayman Islands, says the new law is unique and will likely appeal to many clients.
A novel option
Ogier says foundation companies may be an attractive alternative to trusts for private clients, especially for those in civil law jurisdictions where there are concerns about the tax treatment of trusts.
The law firm says it expects foundation companies will be used as a holding vehicle for shares in a private trust company, as a protector or enforcer of a trust, as a special purpose vehicle in finance and commercial transactions as well as a traditional succession planning vehicle.
According to the legislation, the Cayman Islands’ trust law’s firewall provisions will apply to property. This gives protection against claims in foreign courts to the transfer of assets to the foundation company.
Foundation companies can be created by declaring them to the Registrar of Companies and will be governed by the Companies Law Act 2016.
Unlike conventional companies, foundation companies are forbidden from distributing profits or assets to their members. Additionally, if a foundation company has beneficiaries, they have no legal powers or rights to management of assets.
Rights to information are also limited. Meaning reports and accounts are restricted to “interested persons”, such as its members or supervisors.
A foundation must have one or more members for the purposes of incorporation but, following incorporation, the foundation can cease to have members as long as it has one or more supervisors.