We are advised by Maples and Calder of the Cayman Islands that as of last count, 175 limited duration companies (the"LDC") have been registered in the Cayman Islands. The number of limited life companies (the "LLC") registered is unknown (no separate categorization is made by the Companies Registry), but anecdotal evidence is that the number is perhaps as great as the number of LDC's.
     The key distinction between the LDC and the LLC is that the LDC cannot under the Companies Law have a life of more than thirty years, whereas the LLC may generally have perpetual existence. Otherwise both may provide for the following in their constitutional documents: (i) the prohibition or restriction on the free transferability of shares; (ii) the issue of shares with unlimited liability; (iii) the reservation of management and control to the members (shareholders); and (iv) the mandatory commencement of winding-up and dissolution on the termination of a specified period or the happening of a specified event.
     The LDC or LLC permits U.S. shareholders to avoid the often adverse tax regime applicable to offshore corporations owned by U.S. interests, yet allows them to enjoy the otherwise greater freedom from regulation which exists in offshore jurisdictions, e.g. mutual funds. See the discussion of Revenue Procedure 95-10 elsewhere in this issue with regard to the IRS's position.
     The LDC or LLC is increasingly being used as an alternative to the limited partnership. It is particularly attractive for joint ventures between U.S. and non-U.S. participants, who are not familiar or comfortable with the limited partnership concept (which is barely known by venture capitalists outside U.S.). The LDC or LLC can give U.S. investors the comfort of flow-through tax treatment and simultaneously provide non-U.S. investors with a familiar corporate investment and possible favorable offshore tax treatment (depending on their particular circumstances).
     Shareholders of a Cayman Islands LDC or LLC who are resident in country X which has a double tax treaty with U.S., providing for no or a reduced withholding tax on dividends, should be able to enjoy the benefits of the treaty, even though U.S. has no double tax treaty with the Cayman Islands.Although still relatively young in terms of years, the Cayman Islands LDC and LLC are starting to prove their value in a variety of ways in offshore structures. Our thanks to Maples and Calder, attorneys in the Cayman Islands, for submitting this article to GlobalNote.

     The IRS has recently published Revenue Procedure 95-10, which sets forth the prerequisites to the issuance of a private letter ruling confirming the classification of a domestic or foreign limited liability company (LLC) as a partnership for Federal tax purposes. The revenue procedure applies to all organizations formed as LLCs under any U.S., state or foreign law that allows limited liability to any of their members. The Revenue Procedure does not apply to publicly-traded LLCs taxed as corporations under Section 7704 of the Internal Revenue Code. The IRS will consider a ruling request only if the LLC has at least two members.
     The Revenue Procedure outlines the IRS ruling guidelines with respect to the specific corporate characteristics of continuity of life, free transferability of interests, centralized management and limited liability. In addition, the Revenue Procedure provides minimum ownership requirements that must be satisfied by member-managers (or members assuming personal liability for all obligations of the LLC) if the taxpayer requests a ruling that the LLC lacks continuity of life, free transferability of interests or limited liability under special provisions of the Revenue Procedure that test for the lack of these corporate characteristics by focusing solely on the member-managers (or, in the case of limited liability, the assuming members), rather than on all members. Our tax partner, David Schulder, is happy to answer any inquiries you may have regarding rules affecting these new vehicles.

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