The Cayman Islands is a world-renowned offshore financial center, with suitable company structures and a robust legal framework to facilitate the same. Investors and high-net-worth individuals (HNIs) from all over the world flock here to set up an investment fund or diversify and protect their assets against global and personal uncertainties.
To achieve the same goals, the Cayman Islands SPC, or Cayman Islands segregated portfolio company, is the best solution. With its superb dual-layer protection and multi-purpose use, it is an excellent vehicle for meeting numerous personal and business objectives.
Are you an investor or a high-net-worth individual looking to better organize your assets? Or a corporation wanting to form a captive insurance company? The SPC is the right way for you. This blog provides basic details and legal requirements for setting up a Cayman SPC, along with real-world use cases to help you understand it in depth.
What is a Cayman Islands SPC?
Cayman SPC, or a segregated portfolio company, is essentially a Cayman exempt company that is registered as an SPC. It is typically designed with multiple portfolios or cells that operate independently. To better understand it, think of it as an ordinary company with numerous verticals that fulfill different business objectives and manage assets.
A major aspect of this structure is that the cells or portfolios are not separate legal entities and do not have a separate identity from the firm as a whole. This feature gives this structure a dual-level asset base, with general assets owned by the whole firm and cellular assets owned by the cells or portfolios. Thus, the assets and liabilities of each portfolio are separate from those of the others. That means lawsuits or insolvency proceedings against one do not impact other cells.
It is one of the most popular structures for investment and mutual fund-related businesses, as it enables easier management of various investments.
A Cayman Islands SPC is governed under Part XIV of the Cayman Islands Companies Act. Moreover, the guidelines in the Insurance Act may also apply if a Cayman SPC structure is used for an insurance business.
Features of a Cayman Islands SPC
An SPC in the Cayman Islands has the following features that distinguish it from other legal structures:
- To register as a Cayman Islands segregated portfolio company, an existing or newly formed exempt company must register under Section 213 of the Cayman Islands Companies Act.
- A Cayman SPC structure as a whole is a separate legal entity. The portfolios are not distinct from the firm as a whole.
- An SPC can be set up without portfolios. These can be added later upon payment of additional fees.
- It must include the letters ‘SPC’ in its name.
- Having two directors is mandatory for company setup.
- A Cayman Islands SPC can hold two classes of assets: segregated and general assets.
- In case of an existing company converting to an SPC in the Cayman Islands, obtaining a consent letter from each creditor is necessary before transferring assets to portfolios.
- Each portfolio must have a separate identifier that easily distinguishes it.
Why Should You Set Up a Cayman Islands SPC?
There are numerous company structures, but none match the double protection of a Cayman Islands segregated portfolio company. Here are the other top benefits of this structure:
Like the corporate veil, which separates the owner from the firm, a cellular veil is a similar legal barrier at a minuscule level. A cellular veil is an invisible barrier against the assets of another cell. Due to this, a creditor cannot grab another cell’s assets as repayment. However, it must be noted that a cellular veil can be pierced in extremely rare circumstances, such as fraud or accounting errors.
Ring-fenced Asset Protection
Cayman Islands SPCs are known for robust asset protection. This is further bolstered by Section 221 of the Act, which outlines the liability of each portfolio and the associated managers. Thus, each portfolio is liable only for the debt attributed to it. The bankruptcy or lawsuits against the assets of another portfolio do not become liabilities of other cells, thereby providing ultimate protection from the impact.
Unlike other company structures, a Cayman Islands SPC provides a dual layer of protection. The first protection is the limited liability of the owner. The owner’s personal assets are never at stake to repay any of the firm’s debts. He is liable only up to the amount he invested.
The second protection is the strict ring-fencing of portfolios against each other and the general lawsuits. This overall mechanism protects individual cells from loss or debt of other portfolios.
Lower Administrative Fees
Unlike traditional business or wealth management tactics, which require the incorporation of numerous subsidiaries or trusts, a Cayman Islands SPC addresses different requirements by creating unique portfolios. Thus, the owner or the settlor only has to pay negligible additional fees to incorporate a new portfolio. Moreover, there is no hassle of altering the trust deed and so on.
Ability to Issue Shares and Pay Dividends
Under Section 217 of the Act, a segregated portfolio company in the Cayman Islands can issue different classes of shares as per the requirement. Though the shares are issued by the firm as a whole, the batches of shares are tagged to the portfolios to which they belong. Thus, an investor can invest in a portfolio that aligns with their business goals or investment requirements. Moreover, a Cayman Islands SPC can choose to retain the earnings or pay them off as dividends to shareholders.
Diverse Investment Strategies Under One Roof
By setting up a Cayman segregated portfolio company, you can diversify your investments. From structuring one cell to invest in high-risk assets such as stocks and crypto, to orienting another cell in bonds and real estate funds to ensure consistent returns, you can easily create a stable long-term return plan.
Operational Benefits of Setting Up an SPC in Cayman
Aside from the above benefits of a Cayman segregated portfolio company, there are other operational benefits that one can take advantage of:
Feature | Classic Multi-Company Structure (Parent Co and Subsidiaries) | Segregated Portfolio Company (1 SPC with 5 Cells) |
Legal Entities | 6 distinct companies | 1 single legal entity |
Incorporation Fees | Paid 6 times | Paid 1 time (plus smaller cell fees) |
Governance | 6 different Board of Directors meetings & resolutions | 1 Board of Directors managing all cells |
Financial Reporting | 6 separate sets of audited financial statements | 1 consolidated statement with segregated accounts |
Contracting | Contracts signed by 6 different entities | Signed by the SPC on behalf of specific cells |
Key Uses of a Cayman Islands SPC
A Cayman Islands SPC can be used for the following purposes:
Asset Class Separation
An HNI can put volatile assets such as crypto in one cell, whereas stable assets such as gold or real estate in another.
Wealth Management or Estate Planning
Families can also set up the Cayman Islands SPC to bequeath assets to their offspring. Under this, each cell can cater to a single heir. This in turn enables the heir to manage the risk profile of their investments, withdraw payments, and so on.
Multi-class investment fund
A fund manager can launch an SPC in which one cell caters to high-risk sectoral funds, while another invests in stable large-cap or real estate funds.
Captive Insurance
Many large companies prefer to self-insure (e.g., their own vehicle fleets or workers' compensation). Instead of setting up an expensive, standalone insurance company, they rent or buy a portfolio within an SPC. They pay premiums into their specific cell, and claims are paid out of that cell.
Ring-fencing Debt
Firms can choose to raise debt for a specific project by assigning an individual cell with its own assets and liabilities, thereby mitigating risk.
How to Set Up a Cayman Islands SPC?
You can follow the steps below to set up a Cayman SPC fund structure.
Step 1: Contact a Business Setup Advisor
Connect with an expert to incorporate a segregated portfolio company in the Cayman Islands. Sections 213 & 214 outline how an existing company, a newly registered company, or a non-resident company can register an SPC. It is an ideal move to consult with an expert to get the correct legal requirements and formalities.
Step 2: Define Your Goal
As mentioned above, an SPC can be used for multiple purposes. Define your goal in advance to deflect later hurdles or administrative burden. It must be noted that you can still register cells at a later date and incorporate an empty SPC in the Cayman Islands.
Step 3: File the Notice & Submit Documents
Unlike other jurisdictions where a particular form caters to a firm registration, in the Cayman Islands you have to submit a formal notice to the Registrar of Companies. This notice explicitly states the name of the SPC and formally registers the creation and individual designations of each initial portfolio. Along with this, you must also submit the following:
- A full statement of the company's assets and liabilities in case of an existing company.
- The specific assets to be transferred to a portfolio.
- A declaration of solvency.
- Shareholders’ special resolution authorizing the conversion to an SPC
- Written consent of every creditor of the firm
- Company's constitutional documents (Memorandum and Articles of Association)
- CIMA Consent Letter (If Applicable)
- Registered office and director's details
Step 4: Wait for Approval
Upon submitting the above package, you must wait for the approval. Once approved, the registrar will provide the certificate of incorporation and the company's stamped documents. Upon receipt, you can open an offshore bank account for your Cayman SPC fund.
How Can BSW Help?
Cayman Islands SPC has grown famous for its iron-clad protection against both internal and external risks. Moreover, the flexibility in incorporation makes it viable for both existing and non-resident firms. And that’s where seeking guidance from an expert becomes absolutely necessary, as foreign residents especially face demanding paperwork and other formalities. Business Setup Worldwide’s experts can assist you with meeting the same. Contact us to begin!
