Special incorporations:
Bank, insurance, cell companies

Protected cell companies

OFFSHORE-FOX.COM
with Peter Widder

(Part 4 of 4)

A protected cell company (PCC) is a fairly new corporate form; the concept originated in Guernsey in 1997. Since then, protected cell companies have become available in a greater number of offshore jurisdictions.

What is a protected
cell company?

In simple terms, a PCC is a company which -- in addition to its main, "core" level -- contains a number of segregated parts, or "cells". Each cell is legally independent and separate from the others, as well as from the "core" of the company.

The undertakings of one cell have no bearing on the other cells. Each cell is identified by a unique name, and the assets, liabilities and activities of each cell are ring-fenced from the others.

If one cell becomes insolvent, creditors only have recourse to the assets of that particular cell and not to any other.

An alternative to rent-a-captive
schemes and other uses

Protected cell companies are a welcome arrival for businesses who would have previously chosen a rent-a-captive scheme over the (more costly) formation of an in-house captive insurance company for the purpose of self-insurance.

In traditional rent-a-captive schemes, unrelated businesses "rent" the same captive to insure their risks; consequently, there is no guarantee that funds provided by one participant will not be used to cover unjustified claims of another. In contrast, the structure of a protected cell company provides the necessary protection for each participant's assets.

Despite being a relative newcomer to the corporate world, the flexibility of PCC companies have caused their uses to diversify in recent years. Protected cell companies are used to securitize insurance risk against catastrophic losses, for example; their very structure also makes them an ideal entity for the cost-effective operation of umbrella mutual funds.

Protected cell company:
An asset protector?

Aside from the above, the astute offshore practitioner can employ an offshore protected cell company as an effective asset protector and privacy enhancer.

With an offshore insurance corporation, it is market practice that provides tangible benefits; with the protected cell company, it is the structure of the entity itself -- think of a house with a locked front door, and rooms inside, each with a separate lock and key.

Protected Cell companies have -- in concert with other entities -- been used to construct what has been called "an impenetrable wall" against creditors and prying eyes. Whilst these claims can only be tested by time, this novel use of a PCC for asset protection and financial privacy is an interesting approach and a valuable piece of intellectual property.