What an exempted company is
An exempted company is a Cayman Islands company whose business is carried on mainly outside the Islands. The name comes from the fact that it is exempt from certain requirements that apply to ordinary resident companies, which are set up to trade locally. In practice, an exempted company is the default choice for investment funds, holding companies, special purpose vehicles, joint venture companies and the top company of many private groups.
The company is formed by filing with the General Registry in George Town, usually through a licensed corporate services provider. Once incorporated it has separate legal personality, limited liability for its shareholders and the ability to hold assets, sign contracts and open accounts in its own name.
The law that governs these companies follows English company law in its broad shape, and the courts of the Islands draw on English common law. That familiarity is one reason lawyers, auditors and investors are comfortable with the vehicle.
Typical uses in practice
The uses of the exempted company fall into a handful of familiar patterns. Knowing which pattern applies helps you explain the company quickly to a bank or payments provider, and that explanation is usually the first thing a compliance analyst wants.
- Investment funds. Many hedge funds and some private funds are set up as exempted companies, with a board of directors, an investment manager elsewhere and an administrator handling subscriptions and redemptions.
- Group holding companies. A family or private group may place its operating subsidiaries under a Cayman parent so that shares can be transferred, pledged or listed through one entity.
- Financing and capital markets vehicles. Special purpose vehicles issue notes, hold receivables or sit in aircraft and shipping finance structures.
- Joint ventures. Parties from different countries sometimes choose a neutral jurisdiction with a familiar legal system for their shared company.
- Trading and service companies. Less common today, but some groups still invoice through a Cayman entity, which brings substance questions to the front.
Each use produces a different payment profile. A fund mostly receives subscriptions and pays redemptions, management fees and service providers. A holding company might receive dividends a few times a year and fund subsidiaries. A trading company may send and receive dozens of payments a week. The more a company's actual flows match the purpose described at onboarding, the smoother its account will run.
Governance and how the company is run
An exempted company is run by its directors. The board can be a single director, though many groups prefer at least two so that decisions are not tied to one person and signing authority can be shared. Directors may be individuals or, in some cases, corporate directors. Funds regulated in the Islands are subject to director registration requirements, and many fund boards include professional independent directors.
Shareholders appoint and remove directors and approve major matters reserved to them by the articles of association, such as changes to the constitution or a winding up. Day to day, the board takes decisions either at meetings or by written resolution. Good practice is to keep minutes that show who attended, what was considered and why a decision was taken. Those minutes matter more than many owners expect. When a payments provider asks why a large transfer is being made, a board resolution approving it is often the clearest answer.
Where directors are spread across several continents and decisions are made by email, someone still needs to turn those decisions into proper resolutions and keep them on file.
Registry and corporate documents
When you open an account for an exempted company, you will be asked for a standard set of corporate documents. It helps to know what each one is and where it comes from.
- Certificate of incorporation. Issued by the Registrar of Companies when the company is formed. It shows the company name, registration number and date of incorporation.
- Memorandum and articles of association. The constitution of the company. The memorandum sets out objects and share capital, and the articles set out how the company is governed, how directors are appointed and how shares are transferred.
- Certificate of good standing. Issued by the Registry to confirm that the company is current with its annual filings and fees. Most providers want one that is recent, often issued within the last few months.
- Register of directors and officers. Kept by the company at its registered office. A copy of the current register, certified by the registered office provider, is usually requested.
- Register of members. Shows who holds the shares. This is not filed publicly, so a certified copy or a registered agent's certificate of incumbency is the normal evidence.
- Certificate of incumbency. A summary issued by the registered office provider listing directors, officers, shareholders and sometimes share capital, all in one document.
Two practical points come up repeatedly. First, the public record in the Islands is limited, so third parties cannot simply look up the shareholders online. That is why providers rely on certified copies and incumbency certificates. Second, documents that have changed since incorporation, such as amended articles or a change of name, should be supplied together with the relevant resolutions so the chain is clear.
Where a document is certified, the certifier should be identifiable, the certification should be dated, and the wording should say that the copy is a true copy of the original. Some providers also ask for an apostille or notarisation for documents used outside the Islands.
Beneficial ownership regime
The Cayman Islands operates a beneficial ownership regime under which in-scope companies must identify their beneficial owners and keep that information with a corporate services provider in the Islands. The information is held in a secure, centralised system that competent authorities can access. It is not a public register in the way the UK register is public, and access is controlled.
A beneficial owner in this context is broadly an individual who ultimately owns or controls a set percentage of shares or voting rights, or who otherwise exercises control over the company's management. Some entities, for example certain regulated or listed entities and their subsidiaries, may be exempt from parts of the regime, but they still need to confirm their position.
For a payments provider, the beneficial ownership regime in the Islands is a starting point. The provider still has to carry out its own customer due diligence under the law that applies to it. A Canadian money services business, for example, has its own obligations to identify beneficial owners and confirm the ownership and control structure. In practice, that means you should expect to provide:
- An ownership chart showing every layer between the company and the individuals at the top.
- Identity documents and proof of address for each beneficial owner and for the directors and authorised signatories.
- Documents for any intermediate holding companies, trusts or partnerships in the chain.
- Where a trust holds the shares, the trust deed or an extract, and details of the trustee, settlor, protector and beneficiaries.
A structure that is easy to draw is easy to onboard. If the chart needs a page of footnotes, expect more questions.
Economic substance in general terms
The Cayman Islands introduced economic substance legislation in 2019, as did several other international financial centres. The rules require entities that carry on certain relevant activities to show that they have adequate substance in the Islands, such as being directed and managed there, having adequate staff and premises, and carrying out core income generating activities locally. Some activities, notably holding company business, attract a lighter test.
Whether an exempted company is in scope, and what it must do, depends on what it actually does. A pure equity holding company is treated differently from a company carrying on fund management, financing, distribution or intellectual property business. Investment funds themselves have generally been treated outside the main substance requirements, though the managers and service companies around them may be in scope. Companies typically file an annual notification describing their activities, and in-scope companies file a fuller return.
This is an area where specialist advice is needed, and nothing here should be read as telling you whether your company is in scope. For banking and payments, the point is simpler. Providers increasingly ask how the company meets its substance obligations, or why it is outside them. A clear answer, ideally supported by the most recent notification or a short note from the corporate services provider, saves time. You can read more in our guide to economic substance rules.
Banking and payments considerations
Opening a bank account for a Cayman company used to be routine. Today, many banks are more selective, especially when the company has no operations in the country where the bank sits. Payments firms and money services businesses have filled part of the gap, but they apply the same core questions any regulated provider asks.
The questions usually cluster around four themes:
- Who is behind the company. Ownership, control and the source of wealth of the individuals at the top.
- What the company does. A short, accurate description of the business, with supporting evidence such as contracts, a website or financial statements.
- Where money comes from and goes to. Expected counterparties, countries, currencies and volumes, and the source of the funds that will first be paid in.
- Why a Cayman company. The commercial reason for the structure, which for a fund or holding company is usually straightforward.
Currency is another practical point. Cayman companies are commonly denominated in US dollars, while many of their investments, suppliers or subsidiaries deal in euros, sterling or Asian currencies. Deciding in advance when and where conversions take place gives the company control over the rate and timing, which matters for funds paying redemptions or groups funding subsidiaries.
Finally, payments themselves will be screened. A transfer to a new counterparty in an unexpected country, or a sudden jump in volume, may trigger a request for an invoice or contract. Have the supporting document ready before you send the payment.
Preparing an onboarding pack
The fastest onboardings are the ones where the client sends a complete, consistent pack at the start. For an exempted company, that pack usually contains:
- Certificate of incorporation, memorandum and articles, and any amendments.
- A recent certificate of good standing.
- Certified registers of directors and members, or a certificate of incumbency.
- A board resolution approving the account and naming authorised signatories.
- An ownership chart signed or initialled by a director.
- Identity and address documents for directors, signatories and beneficial owners.
- A short business description and evidence of activity, such as the offering memorandum for a fund or recent accounts for a holding company.
- A note on source of funds for the initial deposit and source of wealth for the beneficial owners.
Check that names, dates and addresses match across every document. A director listed under a maiden name in one register and a married name on the passport is a small thing, but it will stop a file until someone explains it. Our onboarding page sets out the general process.
Keeping the account in good order
Onboarding is the beginning. Regulated providers review client files periodically and whenever something changes. For an exempted company, the triggers that most often lead to a review include a change of directors, a transfer of shares, a change of registered office provider, a new line of business and a material change in payment patterns.
Tell your provider about changes when they happen, with the updated register or resolution attached. Keep the certificate of good standing current, file the annual return and substance notification on time, and make sure the registered office provider has up to date beneficial ownership information. A company that is in good order locally is almost always easier to service abroad.
General information only
This article is general information about Cayman Islands exempted companies and how payment providers approach them. It is not legal or tax advice, and you should take advice from a qualified Cayman Islands practitioner about your own structure. Registry practice, beneficial ownership access rules and substance requirements change from time to time, so confirm the current position before relying on any detail here.
CCYFX does not form companies or give legal or tax advice. It provides Foreign exchange, International payments, Collections and payouts, and Digital asset conversion for businesses. Our Cayman Islands page gives further background.
