Key takeaways
- Changes to the beneficial ownership regime took effect on 31 July 2024 and enforcement relating to the new requirements is suspended until early 2025.
- Many entities that previously had few or no obligations will have to take steps to comply.
- Industry members are to suspend filing under the previous framework until notified to recommence filing under the new framework.
1. What is a CSP?
A corporate services provider ("CSP") is a licensed provider of registered office services to a Legal Person. All Legal Persons are required to have a CSP.
2. What is a Legal Person?
Cayman Islands companies, limited liability companies, limited liability partnerships, foundation companies and, for the first time, exempted limited partnerships and limited partnerships are Legal Persons for the purposes of the Beneficial Ownership Transparency Act ("BOTA"). Trusts and registered foreign companies continue to be out of scope.
3. How can I check whether my entity is a Cayman Islands Monetary Authority registered private fund or CIMA registered mutual fund or whether it is CIMA licensed?
You can check to see what if any regulated status a Legal Person has by searching the database maintained by the Cayman Islands Monetary Authority ("CIMA") here. This can be done for you by Walkers Professional Services ("WPS") if it is engaged as CSP for your entities.
4. Is a Legal Person registered with CIMA under the Securities
Investment Business Act or the Virtual Asset (Service Providers)
Act regarded as a
licensee?
No. Only a Legal Person with a full licence is regarded as a licensee. A Legal Person registered with CIMA under the Securities Investment Business Act or the Virtual Asset (Service Providers) Act must identify its registrable beneficial owners ("RBOs") and provide details of such to its CSP.
5. What is a Contact Person and what is their role?
Instead of identifying and reporting their RBOs to their CSP, CIMA registered mutual funds and CIMA registered private funds may opt for an alternative route to compliance whereby they need only to provide their CSP with contact details of a contact person licensed or registered by CIMA for providing beneficial ownership information (typically a CSP) or a licensed fund administrator located within the Cayman Islands (a "Contact Person").
The Contact Person is a liaison who facilitates communication between the Legal Person and the Registrar of Companies or Registrar of Partnerships, as applicable (together, the "Registrar"). A Contact Person is not required to maintain a beneficial ownership register or beneficial ownership information in respect of the relevant Legal Person but must have access to such information so that it is able to provide the competent authority with any requested beneficial ownership information within 24 hours of a request being made or at any other time as the competent authority may reasonably stipulate. WPS is able to act as Contact Person subject to agreement.
6. How can I check whether an exchange is an approved stock exchange?
A list of approved stock exchanges is set out in Schedule 4 of the Companies Act here. This can be done for you by WPS if it is engaged as CSP for your entities.
7. What is the definition of a Beneficial Owner?
A Beneficial Owner in relation to a Legal Person means an
individual (other than a Professional Advisor or a Professional
Manager) who meets any of the following specified conditions:
a) the individual ultimately owns or controls, whether through
direct or indirect ownership or control, 25% or more of the shares,
voting rights or partnership interests in the Legal Person;
b) the individual otherwise exercises ultimate effective control
over the management of the Legal Person; or
c) the individual is identified as exercising control of the Legal
Person through other means.
Where no individual meets any of the above specified conditions
and the trustees of a trust meet one of the specified conditions in
relation to the Legal Person, the trustees of the trust are the
beneficial owners of the Legal Person if they have ultimate
effective control over the activities of the trust other than
solely in the capacity of a Professional Advisor or a Professional
Manager.
Where there is no individual that meets the requirements above in
respect of a Legal Person, the Senior Managing Official must be
identified by name as the contact person. The Senior Managing
Official may be contacted by the competent authority for enquiries
relating to the ownership and control of the Legal Person.
See FAQ 8 on the meaning of holding an interest directly. See FAQs
9 to 11 in relation to indirect holdings. See FAQ 16 for the
meaning of "ultimate effective control". See FAQ 17 for
the meaning of "control through other means". See FAQ 33
on how RBOs which are trusts are treated. See FAQ 18 for the
meaning of Professional Advisor and Professional Manager. See FAQ
24 for the meaning of Senior Managing Official.
8. What does it mean to hold an interest in a Legal Person directly?
A holds an interest in a Legal Person directly if A holds shares, voting rights or partnership interests in the Legal Person directly.
A also holds an interest in a Legal Person directly if A exercises ultimate effective control over the Legal Person. See FAQ 16 for the meaning of "ultimate effective control".
If none of the above tests are met, A holds an interest where A exercises "control through other means" of the Legal Person. See FAQ 17 for the meaning of "control through other means".
9. What is a Majority Stake?
The Majority Stake concept is crucial to determining whether A indirectly holds a share or right in a Legal Person via another legal entity ("P"). If A does not hold a Majority Stake in P, A will not be regarded as holding a share, right or interest in a Legal Person indirectly and FAQs 10 and 11 below are not relevant. Therefore, even if P wholly owns a Legal Person, A will not be a RBO of the Legal Person by virtue of indirect ownership or control of the Legal Person unless A has a Majority Stake in P.
A has a Majority Stake in P if A holds or controls a majority (meaning 50% or more) of the voting rights in P or A exercises ultimate effective control over the management of P or A is a member of P and controls alone a majority of the voting rights in P pursuant to an agreement with the other members or has the right to exercise, or actually exercises, dominant direct influence or control over P.
10. What does indirect ownership or control mean?
- What does it mean to hold a share indirectly? A holds a share indirectly in B if A has a Majority Stake in another legal entity and that other legal entity holds the share in B or is part of a chain of legal entities each of which (other than the last) has a Majority Stake in the entity immediately below it in the chain and the last of which holds the share in B. See FAQ 9 for the meaning of Majority Stake.
- What does it mean to hold a right indirectly? A holds a right indirectly in B if A has a Majority Stake in another legal entity and that other legal entity holds that right or is part of a chain of legal entities each of which (other than the last) has a Majority Stake in the entity immediately below it in the chain and the last of which holds the right in B. See FAQ 9 for the meaning of Majority Stake.
11. How are holdings calculated?
Any reference to holding shares in a legal entity means holding a right (if any such right exists) to share in the capital or, as the case may be, profits of that legal entity.
12. How about foundation companies?
A foundation company typically has no share capital or equivalent and may not have any RBOs, although this is subject to whether any particular members of a decentralised autonomous organisation (such as a founder or a council member) exercise ultimate effective control over the foundation company. If there is no RBO, a Senior Managing Official should be identified. See FAQ 24 for the meaning of Senior Managing Official.
13. What if two or more persons hold a share or right jointly?
If two or more persons hold a share or right jointly, each of the two or more persons is treated as holding that share or right.
14. What if shares or rights held by a person and shares or rights held by another person are the subject of a joint arrangement between those persons?
If shares or rights held by a person and shares or rights held
by another person are the subject of a joint arrangement between
those persons, each of the two or more persons is treated as
holding the combined shares or rights of all of them.
For example, there may be instances where an agreement is made to
vote or exercise rights jointly with the total combined value of
the shares or rights being 25% or more. Each person party to such
agreement should be identified as a RBO.
15. What are voting rights?
Voting rights means the rights conferred on shareholders in
respect of their shares (or, in the case of an entity not having a
share capital, on members) to vote at general meetings of the
entity on all or substantially all matters.
In relation to a Legal Person that does not have general meetings
at which matters are decided by the exercise of voting rights, a
reference to exercising voting rights in the Legal Person shall be
read as a reference to exercising rights in relation to the Legal
Person that are equivalent to those of a person entitled to
exercise voting rights in a company.
Voting rights in a Legal Person shall be deemed to be reduced by
any rights held by the Legal Person itself.
16. What does it mean to be a person who "otherwise exercises ultimate effective control over the management of the Legal Person"?
The term "ultimate effective control" includes having control through a chain of ownership or by means other than direct control over the management of the Legal Person.
An example might be where an individual controls the removal or
appointment of the Legal Person's directors.
Another example might be where a person exercises ultimate control
over a Legal Person by being appointed as a nominee or given power
of attorney.
Another example might be where an individual at the Legal
Person's investment manager has ultimate control to direct the
Legal Person's directors.
If the Legal Person also has a RBO by virtue of direct or indirect
ownership, that RBO as well as the RBO by virtue of ultimate
effective control are each RBOs.
These scenarios will not be apparent merely by reviewing a Legal
Person's register of members or record of investors.
17. What does it mean to be a person who is "identified as exercising control of the Legal Person through other means"?
Control of a Legal Person could be exercised through other
means, such as debt instruments or financing arrangements, in
certain circumstances. For example, where a lender or creditor has
a contractual right to control a Legal Person via the provisions of
a lending agreement (which might include convertible debt
instruments that are convertible into voting equity). Generally, a
regulated lending or credit institution providing financing to a
Legal Person will rarely be considered as exercising control for
the purposes of the BOTA as the lender or creditor is unlikely to
have ultimate control.
There may potentially be other scenarios where a person can control
a Legal Person's shareholder such that they have control over a
Legal Person.
18. What are a Professional Advisor and a Professional Manager?
A Professional Advisor includes a lawyer, an accountant or a financial advisor who provides advice or direction in a professional capacity. A Professional Manager includes a liquidator, a receiver or a restructuring officer who exercises a statutory function.
19. What if rights held by one person are controlled by another person?
Rights are treated as held by the person who controls their exercise and not by the person who in fact holds the rights (unless that person also controls such rights).
20. What if shares, voting rights or partnership interests are treated as held by a person other than the person who in fact holds the shares, voting rights or partnership interests?
If shares, voting rights or partnership interests are treated as held by a person other than the person who in fact holds them, both persons shall be regarded as holding the shares, voting rights or partnership interests.
21. When is a person regarded as controlling a right?
A person controls a right if, by virtue of any arrangement between that person and others, the right is exercisable only by that person or in accordance with that person's directions or instructions or with that person's consent or concurrence.
22. What if rights are exercisable only in certain circumstances?
Rights that are exercisable only in certain circumstances shall be taken into account only when the circumstances have arisen, and for so long as they continue to subsist or when the circumstances are within the control of the person having the rights. However, rights that are exercisable by an administrator or by creditors while a Legal Person is in insolvency proceedings shall not be taken into account even while the Legal Person is in those proceedings.
23. What about rights attached to shares or interests held by way of security?
Rights attached to shares held by way of security or interests shall be treated as held by the person providing the security where apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights are exercisable only in accordance with that person's instructions; and where the shares are held in connection with the granting of loans as part of normal business activities and apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights are exercisable only in that person's interests.
24. What is a Senior Managing Official?
A Senior Managing Official includes a director or a chief
executive officer of the Legal Person. Unlike an individual
Beneficial Owner, a Senior Managing Official may be a Professional
Advisor or a Professional Manager. The Senior Managing Official is
generally the director who exercises greater authority compared to
the other directors (such as a managing or executive director or
chairman). If there is no such person or other senior official that
exercises ultimate or greater authority as compared to other
officials (ie multiple persons exercise the same level of
authority), at least one of the persons who exercise the same level
of authority should be listed as the Senior Managing Official for
this purpose.
Partnerships are not required by law to have directors or senior
officers and instead have a general partner which may be an
individual or entity. Ultimately, a determination as to whom should
be listed in the beneficial ownership register will depend on the
partnership's unique constitution and operations.
25. Can a Legal Person choose to provide details of a Senior Managing Official instead of its individual Beneficial Owner(s)?
No. A Legal Person can only provide details of a Senior Managing Official if it has no individual Beneficial Owner(s).
26. Is it possible for a Legal Person to have no individual Beneficial Owner(s) and no Senior Managing Official?
No. Even if a Legal Person has no individual Beneficial Owner(s), there will always be a Senior Managing Official.
27. What is a reportable legal entity?
A reportable legal entity ("RLE") in relation to a Legal Person is a legal entity, other than a non-Cayman Islands entity, that would be a Beneficial Owner of that Legal Person if it were an individual. It is not necessary for a Legal Person to identify individual beneficial owners which hold an interest in a RLE, since the RLE will have its own reporting obligations through which such persons are identified to the Registrar.
28. What if a Legal Person is the wholly owned subsidiary of a RLE?
The Legal Person only needs to report its RLE. It does not have to report any individual Beneficial Owner(s).
29. What if a Legal Person is part owned by a RLE and part owned by a non-RLE entity?
The Legal Person must report its RLE and must also look through the non-RLE entity for any individual Beneficial Owners.
30. How are governmental and international organisations and public authorities treated?
Certain RBOs (which may include sovereign wealth funds and state pension funds) are deemed and reported as individuals for the purpose of the BOTA so there is no need to "look through" them. These are a corporation sole (for example a sole trader); a government or government department of a country or territory or a part of a country of territory; an international organisation whose members include two or more countries or territories (or their government); and a public authority.
31. How are segregated portfolio companies treated?
A segregated portfolio company may have several segregated portfolios, each with its own RBO. If a RBO cannot be identified, then the Senior Managing Official should be reported, who may be required to provide information on the ownership and control of the segregated portfolios upon request.
32. How are limited liability companies treated?
If there is no RBO (which will only be the case if the managing member(s) is a non-Cayman legal entity), the managing member may be identified as the Senior Managing Official. Where the management of the limited liability company vests in all the members, but there is no member with 25% or more of the limited liability company's interests, only one member would need to be named as Senior Managing Official.
33. How are RBOs which are trusts treated?
Individual trustees should be recorded in the same way as other individual Beneficial Owners. Trustees which are Cayman Islands entities will be recorded in the same way as other RLEs. Trustees which are foreign entities will need to be recorded by name of the foreign trustee entity together with the name of an individual within the foreign entity trustee. The identity of an individual is included in order to ensure the facilitation of communications between the competent authority and the foreign corporate trustee, where necessary.
These FAQs will be updated on an ongoing basis.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.