Since introducing the Foundation legislation in 2017, Cayman Island Foundations have become a useful structuring vehicle for diverse commercial and personal purposes. On the commercial side as a legal wrapper, the vehicle has been popular as part of a decentralised autonomous organisation (DAO), due to its unique properties:
- Unparallelled flexibility
- Ease of set up and maintenance
- Low cost
- Tax neutral status
These features are available for wealth structures or other commercial holding purposes and the FinTech sector has found that the features a Cayman Foundation are well-suited to DAOs.
Cayman Foundations
Foundations are best described as a hybrid between a company and a trust. Foundations have their roots in civil law but find a welcome home in the common law corporate and trust sector. The crafters of the laws initially intended to provide for situations where a trust was not suitable, giving more diverse options in respect of the control and management structures.
By utilising the strength of company law frameworks together with a unique blend of trust law, investors, clients and users of the Foundations tap into tried and tested legal jurisprudence. For DAOs in particular, this provides for legal recognition while preserving the decentralised decision-making core to their operation.
Key Features of a Cayman Foundation
The key features of a Cayman Foundation that provide an excellent legal wrapper or holding structure:
- Separate legal personality: unlike unincorporated entities, a Cayman Foundation is a separate legal entity. This allows the Foundation to enter into contracts, own assets, or sue or be sued in its own name.
- Members: a Cayman Foundation can lawfully exist as an orphan entity without members or shareholders.
- Protection: the Foundation, its members and stakeholders enjoy limited liability. The wrapper accordingly shields the Foundation as a DAO from the transactions and relations to which it is a party.
- Purposes: Cayman Foundations may be formed for any lawful purpose, including both charitable and non-charitable purposes. This permits a wide variety of uses.
- Flexibility in Design: the Cayman Foundation is one of the most flexible wrapper structures available. The ability to tailor governance to specific needs and to embed limited controls where necessary are significant features for any originator. There is scope to adapt the governing rules, structure and roles of a Cayman Foundation to a range of bespoke needs.
- Privacy: the constitution of a Cayman Foundation can be supplemented by “By-laws” which are not filed with the Register of Companies and so remain private, affording the Cayman Foundation a degree of privacy in its operations coupled with further flexibility to set its own rules in relation to its structure and management.
- Beneficiaries: Cayman Foundations may choose to have beneficiaries rather than members, or together with the members. Unless otherwise specified the beneficiaries will not have standing against the Cayman Foundation.
- Tax Neutrality: the Cayman Islands is a tax neutral environment, with no income tax, capital gains, or other associated taxes.
- Support / Service Providers: as a jurisdiction with a long history and reputation of supporting financial innovation, the Cayman Islands has an abundance of well qualified and capable providers.
Uses for a Cayman Foundation
Cayman Foundations are being put to a wide variety of uses, including:
- Charitable purposes
- Private wealth
- General partners of a partnership in an investment fund structure
- DAOs
We most commonly assist clients setting up their Cayman foundations for two of these uses:
DAOs / FinTech
Many consider that, for a DAO wrapper, an ownerless foundation in the Cayman Islands is the most optimal choice. This structure implies that the Foundation will have no members (owners) and is established exclusively for specific objectives. These may include developing and facilitating blockchain protocol, holding and managing project intellectual property, holding tokens, issuing grants or products, among the many other purposes.
The setup should provide that no single person or entity can usurp control of the wrapper and requires the management of the entity to always align their actions with the declared purposes thereby making the structure more robust and durable. Ultimate control being vested with the DAO members should fuel decentralisation and enhance the offering.
There is a growing need for many DAOs to take on legal form so that they have the capacity to act as a legal person in order to contract with stakeholders and perform more traditional functions which require legal personality. Foundations fulfil that purpose.
Private Wealth
A Cayman Foundation can serve a similar function to a trust with assets being held for the benefit of beneficiaries on terms specified in the Foundation’s governing documents and privately in the By-laws. The key difference between a trust and a Cayman Foundation is that a Foundation is a separate legal person and so, rather than being administered by another person (i.e. the trustee) it is managed and administered by its board of directors, or with controls being left in the hands of a supervisor.
Get in touch
Cayman Foundation Companies represent a pioneering approach to structuring both personal wealth and commercial entities, offering exceptional flexibility and robust legal frameworks. With a unique blend of company and trust law, these entities cater to diverse purposes, from DAOs to traditional private wealth structures. Their adaptability, privacy features, and tax neutrality make them an invaluable asset for innovators in FinTech and beyond.
Whether you’re navigating the evolving landscape of blockchain technology or seeking sophisticated wealth management solutions, Cayman Foundations provide the tools to achieve your goals. For expert guidance on establishing a Cayman Foundation tailored to your specific needs, our team is here to assist. Contact your usual Marbury relationship manager or reach out to info@maburys.com to explore the possibilities.