The Protected Cell Company (PCC) has emerged as a proficient structure for streamlining operations, managing assets, and mitigating risks for insurance companies, investment firms, and real estate ventures. While it is a popular structure in the finance and banking industry, the PCC is also expanding its footprint among other industries and high-net-worth individuals(HNWIs). Let’s learn more about how a PCC works in general, its compliance requirements, perks, applications, and much more.
What is a Protected Cell Company (PCC)?
A PCC is a legal entity composed of a core that can manage multiple cells. The core comprises a management team consisting of directors and other key officials. In some jurisdictions, such as Ras Al Khamiah (RAK) and the British Virgin Islands (BVI), the PCC is popular as a Segregated Portfolio Company (SPC).
Each cell of a PCC can operate independently without overlapping with the others, ensuring seamless risk management. Every cell provides an unmatched scope for segregating assets and liabilities. Many insurance companies utilize PCC for the securitization of assets, the generation of income through a rental captive, and asset management.
Depending on the industry, PCCs are subject to moderate to high compliance, unlike holding companies or other offshore structures. Jurisdictions like Malta, the Cayman Islands, Belize, Guernsey, Jersey, and Ras Al Khaimah offer this potent structure to industries dealing with:
- Collective investment schemes (funds),
- Insurance/reinsurance
- Securitization/structured finance
Some of the defining features of the PCC are its ability to offset liabilities, overcome financial upheaval, and mitigate legal risks. If one cell faces litigation for any reason, the rest will remain legally unharmed and operational.
Characteristics of a Protected Cell Company
- A PCC can have any number of cells, each operating separately without undermining the existence of others.
- The creation or deletion of a cell requires the board’s approval. In some jurisdictions, such as Mauritius, prior approval from the finance regulator is mandatory for these purposes.
- Record-keeping is crucial to ensure the PCC remains legally compliant with applicable legislation.
- Many jurisdictions require the appointment of a dedicated compliance officer and an auditor to ensure compliance.
How does a Protected Cell Company work?
Let’s take an example of how a real estate company can use a PCC to circumvent legal threats and liability-related risks.
Let’s say you own a real estate company that accommodates a variety of properties. You decided to form a PCC in an offshore jurisdiction and create two cells (Cell A and Cell B). Knowing that your rental properties are at risk, you place them in Cell B.
If a creditor files a lawsuit against one of the rental properties (located in Cell B), Cell A will not be subjected to legal risks. It will therefore remain operational, regardless of the outcome of the lawsuit. That’s how a PCC works in general.
Examples of Top Organizations Using a PCC
Investec World Axis PCC Limited
This leading organization has a net value of US$761 million across five cells: Flexible, Cautious, Core, Stellar, and Global Equity. All of these are listed on the Channel Islands Securities Exchange.
Kleinwort Benson Elite PCC Limited
This organization has created 11 active cells, boasting a net value of £285 million, comprising 36 share classes, out of which 27 are listed on the securities exchange.
Why is a PCC the Go-to Structure for Insurance Companies?
Some insurance companies manage a broad portfolio of products and assets. Thus, they are prone to excessive payouts and debts. By forming a PCC, insurance companies can have access to the following advantages:
The "Rent-a-Captive" Model
Under this model, an insurance company can leverage the PCC structure and rent out one or more cells to individuals seeking risk insurance. It ultimately benefits both parties as it creates a sustainable source of income for the former and risk protection for the latter.
Risk Segregation for Different Insurance Lines
Insurance companies managing a broad spectrum of insurance products can utilize a PCC to segregate their offerings across different cells, thereby mitigating liability-related risks. If a cell becomes insolvent, the rest of the cells will continue to operate seamlessly. The PCC’s cell structure can be key to segregating insurance products based on risk threshold.
Securitization of Insurance Risk
It is a benefit that allows insurance companies to create a specific pool of insurance risk in one or more cells and then issue debt instruments, such as Insurance-Linked Securities (ILS), to investors.
The proceeds from the ILS are kept as collateral in a trustee company or a bank account. This pool of funds can further be invested in government securities.
In the event of a catastrophic event, such as an earthquake, the insurance company can use this fund to cover the claims. Alternatively, if no such event occurs, the investors will get their principal along with the interest. This arrangement fosters a win-win proposition for both parties.
Which Other Industries Can Use a Protected Cell Company?
- Real estate companies seeking additional asset protection.
- Asset management companies managing a diverse portfolio of investment funds catering to various investor classes.
- Mutual fund companies.
- Commodity trading companies.
- Maritime & Shipping companies.
- Healthcare providers seeking protection from fraudulent claims.
How is a PCC Different From a Holding Company?
A holding company cannot pursue trading activities. It is primarily a vehicle to manage subsidiaries and assets. A PCC, on the other hand, is more flexible, as it can cater to commercial transactions, manage subsidiaries, segregate risks, bifurcate assets and liabilities based on various categories, including risk. In fact, a PCC enjoys the competitive advantage when it comes to liability fencing and ease of doing business at scale.
Notable Benefits of a Protected Cell Company
A PCC enables businesses to segregate liabilities in any combination across different cells, ensuring much-needed flexibility. Additionally, the independence of cells from each other helps enhance their legal protection.
Apart from segregating assets and liabilities, businesses can use a PCC to expand their footprint beyond local boundaries. The ring-fencing feature of a PCC can be key to future expansion.
A PCC can be a viable structure for bifurcating different investment strategies or business lines, safeguarding one from the liability of another. Apart from insurance and banking institutions, real estate companies can use it to mitigate risks. The presence of cells within a PCC ensures seamless management of assets and liabilities, allowing companies to navigate debts, litigations, and operational upheavals effectively.
Cost-effective Administration
A PCC helps businesses manage multiple companies through a single window, ensuring ease of operations. Plus, it can offload administrative burdens.
While structures such as IBCs and LLCs can protect IP assets, a PCC, through its cell structure, can take an additional step by offering extra layers of protection.
Types of Assets a Protected Cell Company Can Hold
As a flexible business structure, a PCC can hold multiple assets, including but not limited to:
- Shares of other companies
- Real estate properties
- Financial assets, such as stocks, bonds, private equity, venture capital, and derivatives
- Intellectual properties, such as patents, trademarks, and copyrights
- Physical assets, such as aircraft, ships, and equipment
Best Jurisdictions to Form a Protected Cell Company
- The Cayman Islands (as Segregated Accounts Company (SPC)
- British Virgin Islands (as SPC)
- Ras Al Khaimah (RAK) (as SPC)
- Malta
- Mauritius
Form a Protected Cell Company in 6 Steps
The procedure to set up a PCC may vary by jurisdiction. Here is the general procedure for establishing one.
Step 1: Choose an Ideal Jurisdiction
The first step involves selecting a jurisdiction where you can easily form and manage the PCC. You can refer to the above section to make a selection or discuss your options with a business setup advisor.
Step 2: Appoint a Registered Agent
Appointing a registered agent in any of the above locations is mandatory. The registered agent can be a trust company or a licensed service provider.
Step 3: Due Diligence
The registered agent you have selected will conduct a comprehensive KYC to affirm the identity of interested parties, i.e., the ultimate beneficial owners, directors, and shareholders.
Step 4: Document Preparation
The certified agent will assist you in drafting the charter documents, including the Memorandum of Association (MOA) and Articles of Association (AOA). Moreover, they will assist you in filling out the incorporation application.
Step 5: Paperwork Submission
The agent will apply to the competent bodies, including the registrar and the finance regulator, depending on the purpose of the PCC.
Step 6: Assessment and Approval
The registry will vet the submitted documents and application for compliance and completeness. If they find any errors, they will prompt the agent via a notification, outlining the error type and resolution timeline. The agent must respond within the stipulated time with a relevant response to resolve the issue. If the authority finds everything in compliance, they will grant the incorporation certificate.
Documents Needed for PCC Incorporation
- Certified true copy of Board/Shareholder resolution
- Register of directors and members
- Latest audited financial statements
- Original certificate of current standing
- Due diligence documents of beneficial owners
A protected cell company can be an ideal structure for industries serving the finance, banking, investment, and real estate sectors. If structured correctly, businesses can utilize this structure to manage risk, business expansion, and streamline operations. We hope this blog has helped you grasp a better understanding of a PCC. If you need professional advice, you can visit Business Setup Worldwide (BSW) for guidance and support.
With over 8 years of experience, BSW has positioned itself as a trusted service provider that values clients’ satisfaction above all else. From company formation to compliance management, BSW provides a range of services that simplify the business journey for entrepreneurs. Contact us today to book a free consultation.
