Cayman Islands exempted companies have long been favoured for listings on international stock exchanges - often being used for listings on markets in the United States (NYSE and the Nasdaq), and in Hong Kong. As at April 2025 approximately 463 Cayman Islands entities were listed on the NYSE and Nasdaq combined.
A key advantage of using a Cayman Islands listing vehicle is the flexibility of the articles of association of Cayman Islands companies (together with the Cayman Islands Companies Act), which provide a framework within which to implement anti-takeover devices.
What is driving these provisions?
For Cayman Islands companies listed on foreign exchanges, the local law and market practice of the relevant exchange will determine whether, and to what extent, such anti-takeover devices are employed. Common anti-takeover protections found in the articles of publicly listed Cayman Islands companies on U.S. exchanges include (i) blank cheque preferred shares (ii) a classified or staggered board, and (iii) supermajority shareholder approval for mergers.
Blank cheque preferred shares
Blank cheque preferred share provisions authorise the board of the target company to issue preferred shares with special rights, preferences, privileges and restrictions, as determined by the board. This allows the board to issue preferred shares with special voting, approval or dividend rights (or other preferences), without the need for any further vote or action by shareholders.
Inclusion of such provisions in the articles of listed Cayman Islands companies is very common. Although inclusion of such provisions in the articles is prevalent, in practice usage is rare, as the fiduciary duty analysis is often complex and fact-driven.
As is the case before employing many of the anti-takeover mechanisms available to a target board (such as issuing preferred shares to help control voting outcomes in an attempt to thwart a perceived coercive or unfair takeover), directors must consider the specific circumstances to ensure they do not breach their fiduciary duties.
Classified or staggered board
A much more widely used defensive tool (and one that does not have the same level of fiduciary complexity) is the classified or staggered board.
In a typical classified or staggered board scenario, the directors are divided equally into three classes, with each class subject to retirement and re-election in successive years on a rotating basis. A classified or staggered board can serve as a protective mechanism as it ensures that a potential acquiror, having built a significant stake in the target, cannot simply replace an entire board at one time with its own nominees, at least until the acquirer can pass a special resolution to amend the articles. Rather, a classified or staggered board forces a potential acquiror to propose and have appointed its nominees at the company’s annual general meeting for two consecutive years before it can take control of the board. This strengthens the position of the incumbent board and encourages the potential acquiror to engage with the company in any potential takeover situation.
Classified or staggered boards are a prevalent feature for companies listed on U.S. exchanges and are generally permissible under Cayman Islands law.
Supermajority shareholder approval to approve mergers
Another anti-takeover mechanism that may be included in the articles of a Cayman Islands company is the requirement for supermajority shareholder approval to implement a merger (or similar consolidation). Under Cayman Islands law, a special resolution is required in order to implement a merger. The default threshold for a special resolution under Cayman Islands law is at least two-thirds of the votes cast by the members who attend and vote at a meeting of shareholders. Cayman Islands law permits the articles of association of a Cayman Islands company to prescribe a higher threshold for a special resolution approving a merger.
A merger under Cayman Islands law is the most commonly used mechanism for undertaking the acquisition of a public company. Where the articles of a listed company provide for a higher voting threshold to approve a merger this will make an unsolicited acquisition more difficult to consummate without extensive shareholder support.
Alternative devices
There are numerous other common anti-takeover devices that may be employed in the articles of listed Cayman Islands companies. Some examples include restrictions on certain business combinations with interested shareholders and supermajority shareholder approval for amendments to the company's articles or removal of directors.
Why Cayman?
The flexibility of the articles of a Cayman Islands company, and the Cayman Islands Companies Act itself, provide the framework within which to implement a wide range of anti-takeover devices – only some of which have been considered in this article. Irrespective of the inclusion of any anti-takeover provisions in the company's articles, all decisions made by a target board in relation to a proposed takeover offer, including the use of any anti-takeover provisions in the articles, must be made in accordance with the directors' fiduciary duties, particularly the duty to act in what the directors bona fide consider to be in the best interests of the company.
