Following the launch of a Cayman investment fund, it is not uncommon to suppose that the private placement memorandum is the only important fund document. This is because this is the one document that we spend days mulling over, fine tuning and getting to our liking. However, as a stakeholder, you should always remember that there is more than one type of contract between your Cayman investment fund and an investor. Familiar ones are highlighted below for a Cayman corporate investment fund.
Articles of association
Most people hear about the articles of association as they are the regulations of the Cayman fund which are normally filed along with the memorandum of association to initially incorporate the Cayman fund. While the articles of association are not usually signed by all shareholders, when registered, the articles of association bind the Cayman fund and the shareholders thereof to the same extent as if each shareholder had subscribed his name and affixed his seal thereto, and there were in such articles contained a covenant on the part of himself, his heirs, executors and administrators to conform to all the regulations contained in such articles subject to the Companies Law of the Cayman Islands.
If your Cayman fund is a joint venture or private equity vehicle, you may have a shareholders’ agreement in place. The shareholders’ agreement normally covers things such as voting control, ability to appoint multiple directors, share transfers, profit sharing and outlining matters that require specific types of approval. If one is in place, the shareholders’ agreement should be signed by the relevant shareholders, with the Cayman fund as a party.
Subscription agreement + private placement memorandum
As mentioned above, the private placement memorandum is not the only important Cayman fund document. The subscription agreement must be read together with the private placement memorandum and, together, they may form a contract between the Cayman fund and an investor.
Side letters are common between the initial seed investor or a new, substantial investor and the Cayman fund. These investors typically request terms such as information rights, ability to exit and different fees. In some cases, however, a director might not be aware that a side letter exists. As a result, directors should seek to have the Cayman fund as a party to the relevant side letter and require board approval of the same. This is because side letters can be quite complex and generally speaking, the terms should not contravene the articles of association.
As you can see from the above, as a stakeholder, it is a good idea to become familiar with your Cayman fund contracts. In particular, the contracts which may exist between you as an investor and the Cayman fund. While lawyers may resolve your most vexing points in the end, an initial understanding of the issues and specific circumstances of your case from your own perspective may aid your overall approach and could assist in determining how satisfied you feel with the advice that you receive.
About the author
Alric Lindsay is a Cayman Islands corporate/funds lawyer and an independent fund director approved by the Cayman Islands Monetary Authority and licensed under The Directors’ Registration and Licensing Law. Alric also acts as voluntary liquidator to Cayman Islands entities. Alric can be contacted at firstname.lastname@example.org