The Cayman exempted company as a hedge fund vehicle

An exempted company is a Cayman company whose business is carried on mainly outside the Islands. For an open-ended hedge fund it offers a combination that is hard to replicate in other forms: a separate legal person with limited liability, a statutory basis for issuing and redeeming shares, a register of members that is not open to public inspection, and the ability to obtain a tax undertaking for up to 30 years. Once it issues redeemable shares to investors it becomes a mutual fund under the Mutual Funds Act and must be registered or licensed with the Cayman Islands Monetary Authority before it carries on business. This guide sets out what the Companies Act provides, how CIMA regulation attaches, what has to be maintained each year, and when a different vehicle may fit better.

"The vehicle is the part of a fund launch investors notice least and depend on most. A well-constituted exempted company does its job quietly for the life of the fund: redemptions are paid on a clear legal basis, the board knows its duties, and the annual filings are routine." David Lloyd, Chief Executive Officer of CV5 Capital

What an exempted company is

Under sections 163 and 165 of the Companies Act (2026 Revision), a company whose objects are to be carried out mainly outside the Cayman Islands may register as an exempted company, on a declaration by a subscriber to that effect. The status comes with conditions and with advantages that suit an international fund.

• Trading restriction. Under section 174, an exempted company may not trade in the Islands except in furtherance of its business carried on outside the Islands, unless it holds a local licence. It may still enter into contracts in the Islands and exercise its powers there for the purposes of that business.
• No public offer in the Islands. Section 175 prevents it from inviting the public in the Islands to subscribe for its securities unless they are listed on the Cayman Islands Stock Exchange.
• Register of members. Under section 44, an exempted company may keep its register of members inside or outside the Islands, and where it holds no local licence the register is not open to inspection. It must produce the register at its registered office if served with an order or notice by the Tax Information Authority.
• Annual return and fee. Under sections 168 to 171, the company files an annual return with the Registrar of Companies and pays its annual fee in January each year. Late payment attracts penalties of one third, two thirds and then the full amount of the annual fee as the year progresses, and a company that does not comply can be treated as defunct after one month's notice from the Registrar.

Why the company form suits an open-ended fund

From incorporation, an exempted company is a body corporate with the capacity of a natural person and perpetual succession under section 27(2). In a company limited by shares, a member's liability is limited to any amount unpaid on its shares. For investors, that means they own shares in a legal person that holds the portfolio, enters into the fund's contracts and can sue and be sued in its own name.

The redemption mechanics are statutory. Section 37 allows a company, where its articles authorise it, to issue shares that are redeemable at the option of the company or of the shareholder, and to purchase its own shares. Redemptions may be paid out of profits, share premium or the proceeds of a fresh issue of shares, and out of capital where the articles permit it, subject to a solvency test: immediately after the payment the company must be able to pay its debts as they fall due in the ordinary course of business. Exempted companies may also issue shares with no par value.

The rest of the familiar fund architecture is market practice built on that statutory base. Typically the investment manager or its principals hold non-participating voting management shares, while investors hold redeemable participating shares with no or limited voting rights, issued in classes for different currencies or fee terms and, where the fund uses series accounting, in series to apply performance fees fairly. Our guide to equalisation and series accounting covers that last point.

How CIMA regulation attaches

The Mutual Funds Act (2025 Revision) defines a mutual fund as a company, unit trust or partnership that issues equity interests to pool investor funds and spread investment risk, and an equity interest as one that is redeemable or repurchasable at the investor's option. An exempted company issuing redeemable participating shares to investors is therefore a mutual fund. Under section 4, it must not carry on business in or from the Islands unless it falls into one of the regulated categories, and a fund incorporated in the Islands is treated as carrying on business there.

In practice, institutional hedge funds are typically registered under section 4(3). The detail of each category is in our guide to the Mutual Funds Act, and a closed-ended fund structured as an exempted company would instead fall under the Private Funds Act.

Governance requirements for the board

Directors of a mutual fund regulated under the Mutual Funds Act must be registered with CIMA under the Directors Registration and Licensing Act, and an individual who is a director of 20 or more entities covered by that Act, or a corporate director, needs a licence rather than a registration. CIMA's Statement of Guidance on corporate governance for mutual funds and private funds calls for an appropriate number of directors and for the board to meet at least once a year. A minimum of two individual directors is set out in CIMA's licensing guidance for licensed funds; we have not found an equivalent express minimum for registered funds, although institutional investors commonly expect at least two directors, one of them independent of the manager.

Regulated mutual funds are also subject to a set of CIMA rules, including:

• Rule: Corporate Governance for Regulated Entities;
• Rule: Calculation of Asset Values, Regulated Mutual Funds;
• Rule: Segregation of Assets, Regulated Mutual Funds;
• Rule: Contents of Offering Documents, Regulated Mutual Funds;
• Rule: Cybersecurity for Regulated Entities;
• Rule and Statement of Guidance: Internal Controls for Regulated Entities;
• the AML compliance programme and financial sanctions rules in force from 18 September 2026.

Under the Anti-Money Laundering Regulations (2025 Revision), the fund must designate an AML Compliance Officer, a Money Laundering Reporting Officer and a Deputy MLRO. Functions may be delegated to service providers, but responsibility stays with the fund. CIMA's expectations of fund boards are discussed in what CIMA now expects of Cayman fund directors.

What has to be maintained each year

• 15 January: CIMA annual fee for the regulated fund, with a surcharge of one twelfth of the fee for each month it is late (Mutual Funds Act s.9).
• January: annual return and annual fee to the Registrar of Companies under the Companies Act.
• Within six months of year end: audited financial statements, audited by a CIMA-approved auditor, and the Fund Annual Return, filed with CIMA (Mutual Funds Act s.8; Mutual Funds (Annual Returns) Regulations).
• Within 21 days of becoming aware of a material change: an amended offering document or the prescribed details filed with CIMA (Mutual Funds Act s.4(8)).

These filings are made through CIMA's REEFS portal by the fund's Cayman service providers, as explained in CIMA REEFS: how Cayman fund filings are submitted.

Tax position

Under section 6 of the Tax Concessions Act (2018 Revision), an exempted company can apply to the Financial Secretary for an undertaking that no future Cayman law imposing tax on profits, income, gains or appreciation will apply to it, or by way of withholding on its distributions and debt payments. The undertaking may be for any period up to 30 years from approval. An investment fund is also excluded from the definition of a relevant entity under the International Tax Co-operation (Economic Substance) Act (2026 Revision), so the economic substance test does not apply to it, although the annual notification still does.

How the fund is treated for tax purposes in investors' home jurisdictions is a separate analysis and often drives the choice of vehicle, particularly where investors are taxable in the United States.

The segregated portfolio company variant

Any exempted company may register as a segregated portfolio company under Part 14 of the Companies Act. The SPC remains one legal entity, but the assets and liabilities of each segregated portfolio are separated by statute. A portfolio's assets are available only to that portfolio's creditors and shareholders, a portfolio's liabilities are never met from another portfolio's assets, and the directors must keep each portfolio's assets separate and separately identifiable. Each portfolio must be identified as a segregated portfolio and contracts must be entered into for the account of a specified portfolio. An annual fee is payable for each portfolio.

The SPC is the structure that allows several strategies to share one company, one board and one set of service providers while keeping their assets and liabilities apart. It is covered in detail in our complete guide to the Cayman SPC.

Exempted company, exempted limited partnership or LLC

The exempted company is generally the starting point for an open-ended hedge fund with a board-led governance model. An exempted limited partnership is commonly used where the fund is closed-ended or where investors expect a general partner model, and an LLC where flexibility of governance or a particular tax classification matters. The full comparison, including unit trusts, is in our guide to choosing between Cayman fund vehicles. Managers bringing an existing fund to Cayman should also read moving an existing fund to the Cayman Islands.

How the CV5 platform uses the structure

CV5 SPC and CV5 Digital SPC are segregated portfolio companies, the form of exempted company described above. Third party investment managers launch funds as segregated portfolios within them, so each strategy has its own statutory ring-fence while the company, its board, its regulatory framework and its service provider relationships are already in place from day one. The investment manager remains responsible for its strategy and for its own regulatory obligations in its home jurisdiction. The structure is described on our segregated portfolio company page.

Key takeaways

• An exempted company is a Cayman company whose business is carried on mainly outside the Islands, with separate legal personality, limited liability and a register of members that is not open to public inspection.
• Section 37 of the Companies Act provides the statutory basis for redeemable shares, including redemption out of capital where the articles permit and the company passes a solvency test.
• An exempted company that issues redeemable shares to investors is a mutual fund and must be licensed or registered with CIMA before it carries on business.
• Directors of a regulated mutual fund must be registered with CIMA, and the fund must appoint AML officers and comply with CIMA's rules for regulated funds.
• The annual cycle runs from the CIMA fee and Registrar return in January to audited accounts and the Fund Annual Return within six months of year end.
• A tax undertaking of up to 30 years is available, and investment funds are outside the economic substance test.