As a hybrid vehicle, the LLC – modelled closely on that offered by Delaware – offers many of the features of a partnership within an incorporated entity.

In a trust context, it is usual for a trustee to hold shares in one or more “underlying” companies limited by shares (CLS). Each underlying CLS may form part of a wider group structure or be used as a silo for distinct asset classes to prevent cross contamination or co-mingling. This may be so where one or more sub-trusts have been established for the benefit of distinct groups of family members. Such structure may also minimise the trustee’s liability where the underlying CLS, as opposed to the trustee, enters into transactions with, and has exposure to, counterparties.The directors of an underlying CLS often are employed (and provided) by a licensed trustee who may also be acting as trustee of the trust. This potentially creates an additional layer of risks, complexity and costs to the structure because such a director has a range of fiduciary duties that could conceivably conflict with the trustee’s duties.

This may create issues where, for example, a trustee would like the directors of an underlying CLS to take into account competing interests of trust beneficiaries when considering a transaction. However, those directors are required to act in the best interests of the company and not of the trust beneficiaries. Even if an underlying CLS issued multiple share classes which, for instance, effectively allocated income and gains to certain beneficiaries, the directors would nevertheless be extremely limited as to the extent that they could consider the specific interests of a given class when managing the CLS.

LLCs undoubtedly offer more flexibility. Bermuda’s Limited Liability Company Act 2016 (LLC Law) specifically provides that “It is the intent of this Act to give the maximum effect to the principle of freedom of contract and to the enforceability of LLC agreements”.

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Bermuda

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