Cayman Islands Limited Partnerships: Your Guide to Business Registration
Cayman Islands Limited Partnerships
OFFSHORE 离岸
10/17/20238 min read
About Cayman Islands
The Cayman (/ˈkeɪmən/) Islands is a self-governing British Overseas Territory, and the largest by population. The 264-square-kilometre (102-square-mile) territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located to the south of Cuba and northeast of Honduras, between Jamaica and Mexico's Yucatán Peninsula. The capital city is George Town on Grand Cayman, which is the most populous of the three islands.
The Cayman Islands Exempted Limited Partnership
The Cayman Islands is a British Overseas Territory and the leading jurisdiction for establishing offshore investment funds globally. It is considered to be the most attractive hubs for offshore financial businesses as it provides a stable, tax-neutral platform but also offers a sound legislative and judicial system, confidentiality, a leading banking sector and legal and support services.
To register for a Cayman fund license, it is necessary to first incorporate a Cayman Exempted Limited Partnership (ELP). In this article, we will outline some important factors to consider when setting up an investment fund in the Cayman Islands to help fund managers decide whether it is the right domicile for their fund.
What is the Cayman Exempted Limited Partnership (ELP)?
Cayman Exempted Limited Partnership (ELP), is a Cayman partnership that is registered under the Exempted Limited Partnership Act (ELP Act). The ELP Act takes these partnership concepts and provides a modern framework that makes an ELP the vehicle for a variety of purposes. Apart from it being used as a tool for investment funds, it is also used in all types of private equity and real estate; as tax transparent master funds in onshore/ offshore hedge fund structures; and as single-investor vehicles replicating managed accounts.
What should we consider while setting up a Cayman Exempted Limited Partnership (ELP)?
1. Company Name
The company’s name must end with “Limited Partnership, “LP” or “L.P.”. The name shall not include any misleading or sensitive (discriminatory) words. In other cases, the company name, such as “bank”, “insurance”, “trust”, “royal”, may require the prior consent from the Registrar.
2. Registered Office
The company must have a registered office in the Cayman Islands, and the address needs to be used to receive notices and documents.
3. Operating Years
The company’s operating period can be fixed or indefinite.
4. Limited Partnership Agreement
Cayman Exempted Limited Partnerships requires the registration of a partnership agreement, which need not be public information, or exposed to any public scrutiny.
5. Company Structure
The company requires at least two independent individuals or entities to form a partnership (the “two-party rule”), including one general partner and one limited partner. Since the Cayman ELP is not a separate entity, the power, duties and responsibilities of the general partner is very important. At least one general partner must be a ‘qualifying general partner’: typically, a Cayman exempted company.
The articles of incorporation will dictate the respective rights and obligations of the general partners. The general partners shall sign all letters, contracts, deeds and documents on behalf of the ELP. On top of that, any debts or obligations incurred by the general partners will automatically be assumed as the ELP’s debts and obligations. Unless the Limited Partnership Agreement states otherwise, the general partners shall maintain good faith to always act in the interest of the ELP.
Similarly, at least one limited partner must be in place. It can be an individual or a local/ foreign company. The limited partners are not allowed to participate in any business operations and have limited liabilities.
Generally, the limited partners are required to contribute to the ELP the pre-agreed amount under the terms of the Limited Partnership Agreement or accompanying subscription agreement. There is no statutory requirement for contributions to be made in the form of money. Unless the Limited Partnership states otherwise, contributions of investments, properties or other assets can all be considered.
6. Tax Treatment
Neither ELP nor any partners are subjected to taxation in the Cayman Islands. Nonetheless, an ELP need to apply for an undertaking to be granted on behalf of the Cayman Islands Government that, for a period not exceeding 50 years from the date of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the ELP or to any partner in respect of the operations of the ELP, the assets of the ELP or the interest of a partner in the ELP.
7. Compliance and Regulation
Should the ELP be established as an open-ended Investment fund in the Cayman Islands and falls within the definition of a “mutual fund”, it may be regulated by the Cayman Islands Monetary Authority (CIMA) and will have to comply with the local money laundering legislation.
On the other hand, close-ended funds established as ELPs, typically private equity funds, need not be regulated by CIMA. Closed-ended ELPs are not expressly covered within the relevant definitions in the Cayman Islands money laundering statutes as such, but their activities may constitute “relevant financial business” and they may, therefore, be covered by those laws. Despite that, it is most ideal for general partners to have standard KYC and due diligence procedures in accordance with the Cayman Islands anti-money laundering legislation or delegate responsibilities for compliance to an administrator.
Alternatively, we have also seen clients using the Cayman Islands Exempted Limited Partnership (ELP) to distribute carry because they might have various stakeholders (internal and external such as FA, placement agents, entrepreneurs and investors, etc) which they might add or remove from the ELP, depending on the value-add that they bring to the underlying fund. This is to motivate and incentivize such stakeholders.
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from Ardor or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.
5. Company Structure
The company requires at least two independent individuals or entities to form a partnership (the “two-party rule”), including one general partner and one limited partner. Since the Cayman ELP is not a separate entity, the power, duties and responsibilities of the general partner is very important. At least one general partner must be a ‘qualifying general partner’: typically, a Cayman exempted company.
The articles of incorporation will dictate the respective rights and obligations of the general partners. The general partners shall sign all letters, contracts, deeds and documents on behalf of the ELP. On top of that, any debts or obligations incurred by the general partners will automatically be assumed as the ELP’s debts and obligations. Unless the Limited Partnership Agreement states otherwise, the general partners shall maintain good faith to always act in the interest of the ELP.
Similarly, at least one limited partner must be in place. It can be an individual or a local/ foreign company. The limited partners are not allowed to participate in any business operations and have limited liabilities.
Generally, the limited partners are required to contribute to the ELP the pre-agreed amount under the terms of the Limited Partnership Agreement or accompanying subscription agreement. There is no statutory requirement for contributions to be made in the form of money. Unless the Limited Partnership states otherwise, contributions of investments, properties or other assets can all be considered.
6. Tax Treatment
Neither ELP nor any partners are subjected to taxation in the Cayman Islands. Nonetheless, an ELP need to apply for an undertaking to be granted on behalf of the Cayman Islands Government that, for a period not exceeding 50 years from the date of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the ELP or to any partner in respect of the operations of the ELP, the assets of the ELP or the interest of a partner in the ELP.
7. Compliance and Regulation
Should the ELP be established as an open-ended Investment fund in the Cayman Islands and falls within the definition of a “mutual fund”, it may be regulated by the Cayman Islands Monetary Authority (CIMA) and will have to comply with the local money laundering legislation.
On the other hand, close-ended funds established as ELPs, typically private equity funds, need not be regulated by CIMA. Closed-ended ELPs are not expressly covered within the relevant definitions in the Cayman Islands money laundering statutes as such, but their activities may constitute “relevant financial business” and they may, therefore, be covered by those laws. Despite that, it is most ideal for general partners to have standard KYC and due diligence procedures in accordance with the Cayman Islands anti-money laundering legislation or delegate responsibilities for compliance to an administrator.
Alternatively, we have also seen clients using the Cayman Islands Exempted Limited Partnership (ELP) to distribute carry because they might have various stakeholders (internal and external such as FA, placement agents, entrepreneurs and investors, etc) which they might add or remove from the ELP, depending on the value-add that they bring to the underlying fund. This is to motivate and incentivize such stakeholders.
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It does not constitute legal, tax, or accounting advice. Readers should not rely solely on this content for making decisions without consulting a qualified professional. Reading our articles does not create an attorney-client relationship between the reader and our firm.
While we strive for accuracy, laws and regulations change frequently, our articles may contain links to external websites or resources. We do not endorse or guarantee the accuracy of such content. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. Use the information at your own risk.
Before taking any action based on our articles, consult a qualified attorney, tax advisor, or accountant pertaining to your unique situation. Always seek legal advice to ensure compliance with local regulations and ethical standards.
Expert Cayman Islands Business Registration Services
At Adept CS, we specialize in Cayman Islands business registration, helping you navigate the Cayman Islands company register with ease. Our comprehensive services ensure a smooth and efficient Cayman company registration process, tailored to your specific needs.
Setting up a limited partnership in the Cayman Islands can be a complex process, but Adept CS is here to simplify it for you. We provide expert guidance on navigating the Cayman Islands company register and ensure a seamless Cayman company registration experience. Our team is dedicated to helping you register your business efficiently, adhering to all legal and regulatory requirements.
Trust Adept CS for reliable and professional Cayman Islands business registration services, and take the first step towards establishing your presence in this prominent offshore jurisdiction.
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