When the Cayman Islands introduced the Limited Liability Companies Law in 2016 (now the Limited Liability Companies Act, as revised), it was not trying to replace the exempted company or the exempted limited partnership; instead, it was responding to a very specific and increasingly common frustration.
U.S. investors, asset managers and business sponsors were already deeply comfortable with the Delaware LLC. They liked its contractual freedom, its partnership-style economics and the ability to shape governance almost entirely through a private agreement. When those same parties came to Cayman, they often found themselves forced into vehicles that worked perfectly well from a Cayman legal perspective, but felt unfamiliar, rigid or conceptually awkward from a US structuring standpoint.
The Cayman LLC was designed to close that gap. It allows parties to retain the economic and governance logic they know, while benefiting from Cayman’s legal system, political stability, and well-established funds and finance infrastructure. The result is not a Delaware transplant, but a Cayman vehicle that speaks a familiar language.
The real bread and butter of the Cayman LLC
The defining feature of the Cayman LLC is not limited liability; many Cayman vehicles offer that, but the central role of the LLC Agreement (also called the Operating Agreement). In an LLC, the statute deliberately steps back and allows the parties to decide how the entity should really work.
Economic arrangements that would feel forced or artificial in a traditional company can be expressed cleanly and intuitively in an LLC. Capital accounts, bespoke profit-and-loss allocations, waterfall-style distributions, and differentiated economic rights among members all sit comfortably within the structure. There is no need to reverse-engineer commercial deals into share classes, par values or dividend mechanics.
Governance follows the same logic. An LLC can be member-managed, manager-managed, or structured around committees and consent rights that mirror how the business actually operates. Voting rights do not need to track economic ownership. Fiduciary duties can be tailored, limited or expanded within the boundaries of the Act. For joint ventures, carried-interest vehicles, and manager-led structures, this flexibility is often the main attraction.
Just as importantly, much of this detail stays private. The LLC Agreement is not filed publicly, allowing parties to document commercially sensitive arrangements without unnecessary disclosure, while still operating within a well-recognised statutory framework.
How the Cayman LLC compares to the Delaware LLC
For U.S. investors and managers, the Cayman LLC often feels immediately recognisable. That is very much by design. The language, the mechanics and the underlying philosophy mirror what users are accustomed to in Delaware: a flexible entity where the commercial deal leads and the law follows.
That familiarity can be disarming. Many US readers view a Cayman LLC as, for all practical purposes, a Delaware LLC with a different postcode. The reality is more nuanced. While the internal workings may feel similar, the surrounding legal environment is not.
A Cayman LLC operates within a jurisdiction built around cross‑border finance, investment funds and international structuring. Questions about insolvency, enforcement, creditor rights, and regulatory oversight are answered by Cayman law, not by US bankruptcy or state law concepts. That distinction rarely matters when things are going well, but it becomes very important when they are not.
Cayman’s tax neutrality also plays a role. The jurisdiction does not impose entity‑level income or capital gains taxes, meaning the Cayman LLC is typically used as a transparent or fiscally neutral building block. Any US tax classification is determined solely by US tax analysis, not by Cayman law. For many U.S. users, this combination of familiarity and neutrality is precisely the appeal.
How the Cayman LLC differs from the exempted company
The exempted company remains the workhorse of Cayman corporate law, and for good reason. It is well understood, widely accepted by regulators and counterparties, and highly effective for many operating and holding structures.
The difference is not one of quality, but of philosophy. Companies are director-centric and statute-driven. Governance flows through boards, shareholders’ meetings and relatively fixed rules. Economic rights are typically expressed through shares and dividends, even when that is not the most natural way to describe the deal.
The LLC takes the opposite approach. It assumes the parties know what they want and provides them with the tools to document it directly. For US-facing structures, carried-interest arrangements or joint ventures with asymmetric economics often result in cleaner documents and fewer conceptual compromises.
That does not make the LLC a universal replacement for the exempted company. In many regulated, operational, or third-party-facing contexts, a company’s familiarity remains a significant advantage. The choice is usually about alignment with the underlying commercial reality and the familiarity of lead investors, promoters and key parties to a new venture, rather than legal superiority.
How the Cayman LLC differs from the exempted limited partnership
The exempted limited partnership is foundational to the Cayman funds industry, particularly for closed-ended private equity, credit and venture capital funds. It is therefore natural to ask whether the LLC competes with the ELP.
In practice, they serve different purposes. An ELP is an arrangement that creates a partnership without separate legal personality, built around the distinction between a general partner who has control and bears full liability for the ELP, while limited partners have economic exposure but no personal liability. An LLC, by contrast, is a body corporate in its own right, with all members benefiting from limited liability and governance determined primarily by contract.
Rather than replacing ELPs, Cayman LLCs are most often used alongside them. It is common to see LLCs acting as general partners, investment managers, carried-interest vehicles, or co-investment entities within a broader fund structure. In those roles, the LLC’s contractual flexibility and corporate personality become particularly valuable.
When an LLC is not the right tool
The flexibility of the Cayman LLC is one of its greatest strengths, but it is also where misunderstandings can arise. Because an LLC can be shaped so freely, there is sometimes a temptation to use it simply because it feels familiar, rather than because it is the best fit for the job.
In more traditional operating businesses, or where third‑party counterparties, lenders or regulators expect a conventional corporate structure, an exempted company can still be the more straightforward choice. Its governance framework is well understood, and its formality can actually reduce friction in day‑to‑day operations.
Similarly, for closed‑ended investment funds, the exempted limited partnership remains the market standard. Investors, administrators and regulators are deeply accustomed to the ELP model, and its general partner/limited partner dynamic continues to work exceptionally well for private equity, credit and venture strategies.
The Cayman LLC is therefore best viewed as a complementary tool rather than a universal solution. Used thoughtfully, it simplifies complex arrangements. Used indiscriminately, it can introduce unnecessary novelty.
Practical uses of Cayman LLCs
In practice, Cayman LLCs are most often deployed where flexibility is not just helpful but essential. They feature prominently in carried interest and incentive arrangements, manager-led platforms, joint ventures, series financing, estate planning, real estate, special purpose vehicles, and co-investment structures. They are also commonly used as general partners or management entities within broader fund arrangements, sitting alongside ELPs and companies rather than replacing them.
What ties these uses together is not industry or asset class, but the need to express bespoke economics and governance clearly, efficiently and privately.
Members and their rights
At its core, the Cayman LLC revolves around its members. Every LLC must have at least one member, which keeps the structure simple and easy to establish. Beyond that, members enjoy a remarkable degree of flexibility: they are generally free to exercise their rights, vote, give consents, and make decisions in their own best interests. Unless the LLC Agreement says otherwise, members do not owe fiduciary duties to the LLC or to other members. This makes it easy for members to participate confidently without getting tangled in unnecessary obligations, while the LLC Agreement allows them to agree on any protections, responsibilities, or limits they deem appropriate.
Members can also play various roles within the LLC, depending on the chosen structure. They may be active in management, contribute capital, provide specialised expertise, or simply act as passive investors. The LLC Agreement allows for these roles to be defined in detail, providing clarity around responsibilities and decision-making powers. This flexibility ensures that even complex or multi-tiered arrangements can be accommodated without creating unnecessary legal friction, making the LLC a practical choice for joint ventures, investment structures, or any scenario where members have differing levels of involvement.
Interests: The currency of the LLC
Instead of shares, partnership interests or partnership units, members hold LLC interests, which represent their economic and governance rights. These interests can be divided into classes or series, as permitted by the LLC Agreement, allowing for different allocations of profits, losses, and distributions, as well as varied voting and consent rights. By structuring interests into classes, an LLC can give some members preferential returns, special voting rights, or rights to specific assets, while others may have a more straightforward economic participation. If the LLC Agreement does not specify these arrangements, the Act provides default rules that ensure the LLC can still function while keeping things simple.
This flexibility in designing interests is particularly valuable in investment and joint venture structures. For example, one class of interest may entitle its holders to a priority distribution of profits, while another may provide enhanced voting control over certain decisions. Because all of this can be defined contractually, the LLC avoids the rigidity of share classes in a company or the strict hierarchy of limited partnership interests, allowing promoters and members to align rights and incentives precisely with the entity’s commercial objectives.
Management options
Cayman LLCs offer multiple pathways for structuring management, each tailored to the needs of the members and the complexity of the entity.
The simplest approach is member-managed, where the members themselves run the day-to-day operations. This is well-suited to small or closely held LLCs, where members want direct control and operational decisions are relatively straightforward. In a member-managed structure, decision-making authority generally aligns with ownership or as otherwise agreed in the LLC Agreement, allowing members to exercise control in a transparent and efficient manner.
For larger or more complex structures, manager-managed LLCs allow members to appoint one or more managers to operate the LLC, leaving the members to focus on economic participation or strategic oversight. Managers can be individuals or entities, and their powers, responsibilities, and limitations are defined in the LLC Agreement. This approach can mirror the roles of boards or executive teams in companies, providing centralised operational authority while retaining contractual flexibility for member oversight and consent rights.
Beyond these basic models, Cayman LLCs allow for highly customised governance arrangements. The LLC Agreement can establish committees to oversee specific aspects of the business, such as investment, audit, or advisory functions. Voting thresholds can be tailored to require supermajority approval for significant decisions, or certain members may be granted veto rights over particular matters. This creates a hybrid structure that combines the flexibility of a partnership with the clarity and oversight mechanisms typically found in corporate boards, making the LLC suitable for complex joint ventures, investment platforms, or multi-tiered corporate groups.
International appeal
While the Cayman LLC is often discussed in the context of U.S.style structures, its flexibility and contractual foundation make it a valuable tool for promoters and investors around the world. International investors and institutions can engage comfortably with the LLC because its structure can be tailored to meet their preferences and commercial norms. Whether the participants are European, Asian, Latin American, or elsewhere, the LLC offers a familiar and adaptable framework for aligning economic and governance rights across different legal and cultural environments.
This global appeal extends beyond investors to the promoters themselves. The Cayman LLC provides an intuitive and widely understood vehicle for structuring complex arrangements, raising capital, or coordinating multinational operations. It is not just a US-oriented product; it is a universally flexible tool that enables international promoters to attract US institutional capital while maintaining a structure fully compliant with Cayman law and optimised for cross-border commercial realities.
Closing thoughts
The Cayman LLC reflects a broader theme in Cayman’s legal development: a willingness to respond to how business is actually done. It does not seek to displace established vehicles, but to sit alongside them, offering an additional option where flexibility and commercial alignment matter most.
For US-facing structures, the LLC provides a reassuring sense of familiarity without sacrificing the benefits of Cayman’s legal system and international credibility. For more complex arrangements, it offers a way to document economics and governance as they are genuinely intended, rather than forcing them into inherited forms.
At its best, the Cayman LLC is not about innovation for its own sake. It is about clarity, adaptability and choosing the right tool for the right purpose, an approach that mirrors how we think about structuring more generally.
Shelley Do Vale is the founder and managing partner of Vale Group.
