A Strong Foundation For Philanthropy: The Use Of Cayman Foundation Companies As Not-For-Profit Enterprises

• Published date: 18 January 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Trusts
• Law Firm: Conyers
• Author: Mr Robert Lindley, Peter Ch'ng and Wesley O'Brien

Since the introduction of the Foundation Companies Law in 2017, Cayman foundation companies have been utilised in a variety of different structures. While their introduction was intended to attract clients from civil law jurisdictions (who may be more familiar with foundations as opposed to trusts), foundation companies are fast becoming the go-to structure for philanthropic and not-for-profit enterprises incorporated in the Cayman Islands.

This article will explore the unique advantages that a Cayman foundation company offers when establishing a philanthropic or not-for-profit enterprise, and how this structure compares to charitable trusts and companies limited by guarantee (which have historically been the preferred structures for not-for-profits).

When establishing a not-for-profit ("NFP"), it is understandable that the focus of its founders is on the mission that they have set out to achieve. How an entity is structured will invariably affect how it is governed, and therefore how successful it is in achieving its mission. Despite this, the structuring of NFPs is often overlooked or treated as an afterthought resulting in an organisational structure that is not well-placed to achieve its objectives.

Because NFPs have unique goals, questions pertaining to their legal structure and governing documents are often more complex than those applying to commercial-profit-maximising companies. Traditionally, NFPs in common law jurisdictions are often established as either a charitable trust or a company limited by guarantee, with each legal structure offering distinct advantages and disadvantages. The key distinction between the two is that unlike a company, a trust does not have separate legal personality and so cannot sue or be sued, or hold property in its own name.

Cayman Foundations may be viewed as a hybrid between a trust and a company, and have therefore emerged as an attractive structuring option for NFPs. While Cayman Foundations have separate legal personality, their governing documents may often have features which are more familiar to trusts. For example, Cayman Foundations can be established with a "Founder" whose role is similar to that of the settlor of a trust, with the Founder able to retain certain powers in relation to the entity (such as the power to amend governing documents, approve distributions or appoint/remove directors). Unlike a trust that may be susceptible to challenge should the settlor be seen to be exercising too much control...