You Gotta Have (Good) Faith | The Cayman LLC Law

The Limited Liability Company (LLC) in the Cayman Islands has proven to be a popular vehicle from the outset. One of the key selling points of the LLC is the ability for clients to mirror the terms of their onshore vehicles and structures; and for that reason, the Limited Liability Companies Law (the Cayman LLC Law) has been closely modelled on the Delaware vehicle of the same name. However, in response to our discussions with users of the Delaware product, the Cayman model has one key departure: it offers contracting parties a greater degree of flexibility and certainty when considering the duties owed by members to one another.

The Cayman Islands legislation did not import the implied covenant of good faith and fair dealing, which we understand is the only duty that cannot be waived, modified or eliminated in a Delaware LLC agreement. The resulting ability to expressly define the duties applicable to the parties to an LLC agreement entirely within that document affords the contracting parties, who are typically sophisticated and experienced, the flexibility to negotiate their agreement with the certainty that its terms will be considered entirely within the four corners of the contract. The uncertainty inherent in the implied covenant of good faith and fair dealing, with the potential that exists under Delaware law for an exercise of judicial discretion in a way that may run counter to the true intention of the parties, is avoided...

 

This article first appeared in The Drawdown; Private Equity Funds Cayman 2017.

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