Over recent years, the Cayman Islands has proven itself an increasingly popular jurisdiction of choice for the incorporation of companies owned or operated by parties in Asia, with the following being some of the key reasons for such popularity.
- The Cayman Islands possess a well developed body of laws relating to companies and modern business practices, whilst avoiding the ‘over regulation’ (such as Takeovers Codes or offering restrictions) often found in other jurisdictions.
- With its foundation in English law, and English case law being persuasive, if not binding, as a matter of Cayman law, the principles of Cayman law are familiar to those people in Asia used to operating under a common law environment.
- The principal statute in the Cayman Islands in respect of companies, the Companies Law, is flexible enough to permit a Cayman company’s memorandum and articles of association to be amended to accommodate, in the case of listed companies, the regulatory requirements of the regime under which the company operates or, in the case of private companies, commercial requirements of shareholders in respect of shareholders rights.
- Cayman has no corporation tax, income tax, capital gains tax, inheritance tax, gift tax, wealth tax, or any other tax applicable to a company conducting offshore business, though certain documents are subject to (generally nominal) stamp duty.
- Tax planning for Cayman exempted companies can be greatly enhanced through the ability of all exempted companies to receive a ‘Tax Exemption Undertaking’, generally granted for a period of 20 years, under which such companies are exempt from any possible future Cayman taxes.
- There is no exchange control in the Cayman Islands, and Cayman companies are free to acquire, hold and sell foreign currency and securities without restriction.
- There are no restrictions on the nationality of the directors or shareholders of an exempted company, and the Companies Law means that responsibility for the management of a Cayman company can largely rest with its board of directors, other than in certain specified instances.
- Cayman has economic and political stability and an administration willing to legislate to accommodate modern business requirements. For example, The Companies (Amendment) Law 2009, which came into effect in May 2009, introduced a much simpler and cost effective method for the merger of Cayman and non-Cayman companies, similar to that already provided for in other offshore jurisdictions; whilst the practical effect of the Tax Information Authority (Amendment) Act, 2008 is that Cayman will have an enhanced ability to provide information on taxation matters not just to the government of the United States, but to other jurisdictions as well.
- Cayman has a sophisticated professional infrastructure, with an array of professional service providers in Cayman, Asia and across the globe able to service the needs of a range of clients as demanded.
A clear indication of the Cayman Islands’ popularity is the number of Cayman Islands companies listing on Asian bourses. In Hong Kong, where Cayman companies were first permitted to list in the mid 1990s, the Cayman Islands is one of only four jurisdictions, other than Hong Kong, Bermuda and the PRC, that the Hong Kong Stock Exchange has generally approved as suitable for listing. At the end of 2008, of the approximately 1100 companies listed on the Main Board in Hong Kong 342 were incorporated in Cayman, whilst of the 174 companies listed on Hong Kong’s GEM market 102 were incorporated in Cayman, making it the most popular choice of jurisdiction. In 2008, 29 new companies listed on the Main Board of the Hong Kong Stock Exchange, of which approximately 50 per cent were Cayman Islands incorporated.
The characteristics of the Cayman Islands highlighted above are key to the popularity of Cayman companies as vehicles for listing purposes. Under the Hong Kong Stock Exchange listing rules, in order for a Cayman Islands company to be suitable for listing, it must, among other things, include provisions in relation to the following in its articles of association:
- requiring a special resolution for any amendments to the memorandum or articles, where a special resolution is required to be passed by three-fourths of those attending and voting at the relevant meeting,
- requiring the company to hold an annual general meeting each year, on not less than 21 days notice, and the preparation and delivery to shareholders in advance of such annual general meeting of audited accounts,
- imposing restrictions on the ability of directors to vote on contracts in which they have a material interest, other than as specifically permitted under the listing rules,
- requiring that the company restrict or prohibit certain shareholders from voting in certain circumstances or in respect of certain transactions in accordance with the provisions of the listing rules,
- providing shareholders with the right to remove directors at any time by way of ordinary resolution,
- restricting the making of loans to directors and their associates and requiring the approval of shareholders to the payment to any director or past director of any sum (other than to which the director is contractually entitled) by way of compensation for loss of office
- authorising the attendance and exercise of voting rights at meetings of the company of representative(s) of any recognised clearing house, which is a member of the company, with a view to facilitating the representation at such meetings of the views of shareholders whose shares are traded electronically through the central clearing and settlement system in Hong Kong.
The Companies Law is flexible enough to permit the adoption of articles of association that comply with such requirements, whilst Cayman’s developed and familiar body of laws, reputable professional advisors and favourable tax system have all ensured it has a reputation for quality as a leading offshore financial centre, which provides comfort to investors in such companies.
In addition to Hong Kong, Cayman Islands companies are listed on numerous other bourses in Asia, including Singapore (Singapore Stock Exchange), Japan (Tokyo Stock Exchange) and Korea (KOSDAQ), and globally, including England (AIM market) and the United States of America (both NYSE and Nasdaq). Further listings are planned for Taiwan later this year.
The popularity of Cayman Islands companies for listing purposes has created a knock-on demand for start-up and newly established groups to have their holding company incorporated in the Cayman Islands. Founders typically look to Cayman with a view to listing the company in the future. The familiarity of investors, including private equity funds that are likely to have their own funds established in Cayman, is another key reason why Cayman is chosen for such vehicles
The world has recently been faced with a financial crisis hardly seen before in modern times and this has had an inevitable impact on world and Asian initial public offerings. However, when markets do recover, as they surely will, there is no doubt that Cayman will be one of the jurisdictions of choice for Asian IPOs.
Conyers Dill & Pearman has won Offshore Law Firm of the Year Awards in China, Japan, and South East Asia, and the firm’s Cayman Islands lawyers are ideally suited to assist with the structuring of Cayman Islands vehicles for clients with connections in Asia.