Private equity funds and family holding companies could certainly benefit from the ease of use and freedom afforded by a Cayman LLC. The need for flexibility in these arrangements has often forced members into forming exempted limited partnerships, despite the liability exposure. Those looking to create a private fund will now be able to form a Cayman LLC without being forced to decide between the accounting and structural limitations of an exempted company and the need for a general partner to take the lead in managing an exempted partnership.
Most legal commentators identify the investment funds industry as the primary beneficiary of the new Cayman LLC entity. Cayman LLCs could easily expand beyond the U.S. investment field, however. The limited liability company is a relatively new phenomenon in the United States. Internationally, it is almost unknown. Cayman LLCs may become a popular choice for a range of limited use corporate transactions. Depending on the goals of the business, special purpose entities could be organized as Cayman LLCs based on the tax benefits and liability protection afforded to members.
Hedge Funds Reap Benefits
Hedge funds that use a master-feeder structure will, perhaps, be the most affected by the new Cayman LLC entity. A large number of hedge funds currently use a Delaware LLC with a Cayman exempted limited partnership or a Cayman exempted company. Typically, the Delaware LLC will serve as the sole general partner in the Cayman exempted limited partnership. The introduction of the Cayman LLC may allow for a smoother, more efficient relationship between the two participating entities.
A Clear Alternative
Choosing the right entity for a business is a vital first step. The Cayman LLC provides an alternative legal structure that may be advantageous.
Businesses looking for an offshore opportunity that finds the happy middle ground between a partnership and an exempted company should consider the Cayman LLC. In particular, family wealth companies and private equity funds should learn about this entity and its potential benefits.
For clients currently operating a Delaware LLC, the Cayman LLC could allow for the rapid and predictable creation of a partner for a master-feeder relationship. It is an alternative that is likely to be attractive to many new and current investors.
While many ventures will prefer to remain in their current forms, the possibilities that the Cayman LLC offers could improve efficiency and greatly ease the burden of managing an offshore business.
For assistance with forming a Cayman LLC and other services, please contact Virtual Paralegal Services today.