- Choose a jurisdiction.
- Set up a hedge fund entity (exempted company, partnership, unit trust) and a management company.
The Cayman Islands is the world’s leading domicile for offshore funds and a top banking centre, with 40 of the top 50 banks having offices there. As a leader in structured finance and the second largest captive insurance centre in the world, Cayman has a strong government and private sector partnership and is responsive to changing market needs.
The Cayman Islands has an English common law legislative system and has maintained very stable political, social, economical and fiscal climates throughout its history. It is estimated that 75% of all offshore hedge funds were established in Cayman.
Cayman is a tax neutral environment with no personal, corporate income or capital gains tax. Corporate entities can also apply for a tax concession undertaking from the Governor in Council that no tax be levied for a period of 20 years.
Setting up the Hedge Fund:
- Engage an onshore and/or offshore Legal Counsel to assist in drafting an offering document setting out the terms of the offering and the fund’s shares.
- The Legal Counsel should then prepare the Memorandum and Articles of Association, which will be used to set up the company, to conform to the offering document.
- Next, incorporate the exempt limited liability company with the Registrar of Companies and register the fund with the CIMA.
*Most funds are registered with CIMA under Section 4(3) of the Mutual Funds Law (2015 Revision). Funds may be exempt from registration and the registration exemption includes funds with 15 or less investors or closed ended.
Initial Regulatory Set up Fees (USD):
- Incorporation: $731.70
- Tax exemption certificate (optional): $1,890.27
- Register of Directors: $91.46
- Stamp Duty: $60.98
- Certified copies of Certificates of Incorporation: $365.85
- CIMA administrative filing fee: $365.85
- CIMA registration fee: $4,268
Annual Fees (USD):
- Annual Return: $853.66
- CIMA registration fee: $4,268
Setting up the Management Company:
Investment Managers may already have an investment company formed in another jurisdiction, if so, this can be used as the Management Company and it is not a requirement to set up a Cayman management company.
If there is no existing management company, the first step is to engage a Cayman attorney to prepare the Memorandum and Articles of Association.
The management company is typically established as an exempt limited liability company with the Registrar of Companies and licensed by CIMA under the Securities Investment Business Law (2015 Revision), unless it qualifies for an exemption from registration.
*Usually an investment management company would seek to fall under paragraph 4 of the Fourth Schedule of the Securities Business Law which requires the investment management company to carry on securities investment business exclusively for one or more of the following classes of person:
- A sophisticated person (this includes a fund registered with CIMA)
- A high net worth person
- A company, partnership or trust (regulated or not) of which the shareholders, unit holders or limited partners are one of more persons falling within (1) or (2).
If the investment management company qualifies for an exemption it will not need to obtain a license for investment business. However, the company will need to file with CIMA declaring that the investment manager is an “excluded person” and pay an initial and annual CIMA filing fee of $6,097.
Exempt company fees are the same as above for the hedge fund investment company.
What assistance is available?
A company manager/formation agent can provide service in getting the companies set up. They will be able to discuss other company structures such as partnerships, LLC’s and unit trust, as required.
Formation Agents: How can Apex Help?
Formation agent’s are required by law to make the filings with the Registrar and form the company. Formation agents usually provide registered office services as well (a requirement for Cayman companies).
Corporate Secretarial Services: How can Apex help?
Corporate secretarial services are usually provided by the company managers. These services generally include keeping of the company’s statutory books and records, holding and recording board and shareholder meetings and handling corporate filing’s and publications.
Directorship Services: How can Apex help?
A hedge fund investment company registered with CIMA is required to have at least two directors. Exempted funds require one director. For the management company, at least one director is required. There are no nationality or residency requirements, however, it is best practice to have at least one resident director that is knowledgeable about the local laws governing the companies.
Professional Legal Services:
Legal Counsel should be consulted in relation to all stages of fund set up, these services will include advice regarding formation, preparation, review, plus commentary on documentation and agreements. Apex Cayman has a network of local legal counsel partners and would be happy to provide introductions.
For more information on any of the above, or assistance in setting up a Fund in Cayman, please contact our Cayman Office.