There's a reason the Cayman Islands is one of the world's largest and most attractive hubs for offshore financial business. In addition to providing a stable and tax-neutral platform, we also offer a sound legislative and judicial system, confidentiality, a leading banking sector, legal and financial experts and support services.
As high taxes, complex financial laws, and economic and political instability issues continue to impact the land-based world, the Cayman Islands' appeal as a location to establish private equity, venture capital and real estate funds has grown. I am.
To help fund managers decide whether the Cayman Islands is a suitable home for their fund, we outline some of the key factors to consider when setting up a private equity or venture capital fund, and outline the required documentation and relevant regulations. I explained.
1. What fund structure should I use?
Open-end funds allow regular redemption by investors and are suitable for funds with liquid investment strategies (such as hedge funds), while closed-end structures require investments to mature over a long period of time. Suitable for funds that require
Closed-end funds do not allow investors to redeem or exit the fund until the fund is closed. Closed-end funds accept investors for a limited period of time, and the number of investors is fixed at the end of the subscription period. Closed-end funds typically have a finite lifespan, as investors want to know how long their capital will be tied up.
2. Limited partnership
The most popular Cayman Islands vehicle for Asian private equity, venture capital and real estate funds is the exempt limited partnership. The Exempted Limited Partnerships Act (ELPL) regulates the formation of this type of partnership. To register with ELPL, such a partnership must have a general partner and at least one of her limited partners. General partners are typically incorporated as exempt companies in the Cayman Islands. Exempt limited partnerships do not have a separate legal personality and the general partner is responsible for managing the partnership business. Contracts and other documents with third parties are therefore concluded by the general partner on behalf of the partnership.
Under ELPL, there are a number of specific requirements that apply to exempt limited partnership structures. These include that at least one of her general partners must be based in the Cayman Islands (which can take many forms), and that the general partner must be responsible for all of the partnership's debts in the event of bankruptcy. This includes being responsible for and duties.
It is worth noting that under ELPL, the role of a limited partner is very different from that of a general partner. Limited partners are passive investors and may not participate in the business operations of the partnership. Failure to participate increases the risk of liability for the partnership's debts and obligations. However, the ELPL's “safe harbor” provisions allow limited partners to assume certain roles or perform certain actions with respect to the partnership without jeopardizing their limited liability status. For example, a limited partner may provide services to, appoint members to, or consult with or advise the general partner, the partnership's or partners' board or committee, or amend the partnership agreement to consult or advise the general partner. can be approved.
3. Exempted Companies/Separate Portfolio Companies
A less common alternative structure for private equity, venture capital and real estate funds in Asia is an exempt company or segregated portfolio company (SPC). The Cayman Islands' SPC law segregates assets and liabilities into separate pools. SPCs are attractive because they can achieve such separation within one vehicle, thereby avoiding the expense of forming a separate company to achieve the same effect. An SPC allows the establishment of a number of single investor portfolios designed to meet the specific needs of an investor, and discloses the details of such portfolios to other investors within his SPC. is not necesary to.
Regarding subscriptions, similar to a limited partnership, an SPC can accept subscriptions for a set period of time. Capital commitments are withdrawn by the directors of the SPC when he is required to make investments or pay fees and expenses, and an appropriate number of shares reflecting the value of the capital contribution is issued to the investor.
4. Limited company
A third option is to form your private equity or venture capital fund as a limited liability company (LLC). An LLC combines many of the features of a company with the flexibility of a partnership. Unlike a partnership, an LLC may be formed by a single member. A member receives her one LLC interest, which represents, for example, a share of profits and losses, voting rights, the right to receive dividends, etc.
Subject to certain exceptions, closed-end funds constitute private funds under the Cayman Islands Private Funds Act and are therefore required to be registered with and are regulated by the Cayman Islands Financial Services Authority. For more information on this process, please refer to the Private Funds publication.
A general partner is exempt from licensing under the Cayman Islands Securities Investment Business Act (SIBA), but may not carry on any securities investment business unless it is a necessary or incidental part of its role as general partner. Partnerships and general partners must have a registered office in the Cayman Islands and Conyers Client Services will provide that office.
Conyers Client Services will oversee the formation of the General Partner as a Cayman Islands exempt company and the formation and registration of the Fund as an exempt limited partnership. This can normally be done within 48 hours of submitting each application to the Cayman Registrar. However, copies of the certificate of incorporation, general partner memorandum, articles of association, and partnership registration certificate may take up to 7 to 10 business days to be issued by the Cayman Registrar unless an expedited service is used.
To streamline the formation process, the Fund is established with Conyers Client Services' standard limited partnership agreement, with a general partner and a person acting as the first limited partner (usually the person under whom the limited partner agreement is executed). (the person withdrawing from the partnership). Investor limited partners are permitted).
In general, the following documents may be required for the Fund:
- limited partnership agreement
The limited partnership agreement establishes the fund and governs its overall operations. The standard Conyers Client Services Limited Partnership Agreement will be amended to cover the initial limited partner's withdrawal and to reflect other commercial and operating terms of her partner's admission to the Investor Limited.
The Offering Agreement contains details regarding the offering of the Fund's limited partnership interest, including capital commitments and bank accounts.
The Section 9 statement contains the details required by ELPA (such as the name and registered office of the general partner and partnership, and the term of the partnership) and is filed with the Cayman Registrar.
- Private Placement Memorandum (PPM)
If a PPM is issued, the PPM will include all material information to reflect the structure of the transaction, including disclosures regarding the Fund's material terms, applicable risk factors, anticipated transaction pipeline, and management expertise. It should include relevant commercial and operating terms and related information. .
These constitute Conyers Client Services' standard memorandum and articles of association for exempt companies incorporated with limited liability in the Cayman Islands.
Resolutions are passed by the general partner's directors and cover, for example, the review and approval of amended and restated limited partnership agreements and subscription agreements.