What is a protected cell company?
The Protected Cell Company “PCC” is a relatively simple concept in that the structure consists of a single parent company – being the PCC, within which there are legally segregated sub-divisions, which are called "cells".
But, before describing the intricacies of a PCC it is necessary to briefly explain the background which gave rise to this type of structure.
These entities originated in Guernsey, specifically by means of The Protected Cell Companies Ordinance Act of 1997. Other offshore jurisdictions have followed the path of Guernsey, including the Cayman Islands with its Segregated Portfolio Companies; Bermuda (which passed the New Providence Mutual Ltd. Private Act allowing a PCC structure for this type of entity); Mauritius (which approved The Protected Cell Companies Act of 1999 [amended in 2000]); and St. Vincent and The Grenadines with their International Insurance (Amendments and Consolidation) Act of 1998 which allows "protected premium accounts" introducing elements of the PCC.
Vanuatu has The Protected Cell Companies Act No. 37 of 2005 which in our opinion is arguably the most modern and up to date version of PCC legislation. Click here for a copy of the Act
The operational and business flexibility offered by PCC’s can in many circumstances facilitate trade, capital flows, legitimately help reduce high/prohibitive tax burdens on business or even assist in fulfilling people's natural and legitimate desires for asset planning and protection.
Insurance Solutions
Protected Cell Companies are a welcome arrival for businesses that might otherwise have gone without insurance because of prohibitively expensive premiums or, where insurance proved virtually impossible to get in the general insurance market and if available, often the cover contains inequitable terms restricting the scope of cover rendering any such insurance virtually ineffective.
In circumstances described above, until the introduction of PCC legislation there remained little choice but, to arrange insurance via a rent-a-captive scheme, over the (more costly) incorporation of an in-house captive insurance company.
Commercial Pacific Insurance Ltd’ through PCC legislation can provide alternative risk management solutions for clients who might wish to take advantage of the benefits of managing their own insurance risks, thus utilizing expenditure and profits in the most efficient way.
In most cases, where insurance is sought for commercial purposes, premiums are usually tax deductible. The further positive affect is that any earnings on unclaimed premiums are put to the account of the cell thus, increasing the cell’s value. As Vanuatu is free of income tax a cell’s earnings can roll up gross, and be invested along the desires of stakeholders while remaining available to fund insured contingencies for future claims.
In just about every case, insurance policy contracts can be tailored to meet the specific requirements of a cell’s key objectives without restriction ie: -
- Life Insurance (offshore) – free of estate duties;
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- High Value - Low Risk Asset;
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- (utilization of contingent funds)
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- Contingent Fund Building;
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- (in most cases) – Tax Free Earnings
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What are the Legal Characteristics of a PCC?
A Protected Cell Company, or PCC, can be thought of as being a standard limited company that has been separated into legally distinct portions or cells. The number of cells that a PCC can have is in theory, unlimited
Each cell is an independent entity and is allocated its own assets (the cellular assets). The revenue streams, assets and liabilities of each cell are kept separate from all other cells so that neither cell is affected by the business or operations of another or, or by the PCC itself.
Cells are not legal entities in their own right, but are legally independent and separate from the other cells. The only legal entity is the PCC, which carries on all the business and operations on behalf of any cell.
The operations or business of a cell or, group of cells, are dependent of the purpose of a cell’s formation and the desires of stakeholders.
Each cell is identified by a unique name, and the assets, liabilities and activities of each cell are segregated from the others. If one cell becomes insolvent, creditors only have recourse to the assets of that particular cell and not to any other.
In the case of insurance, the cellular assets would consist of any insurance premium and earnings on that premium, held for that particular cell against a particular risk –and- the cellular liability would be the sum insured value covered by the insurance policy issued for the premium.
What are the Benefits of using PCC?
The operational and business flexibility offered by PCC’s can in many circumstances facilitate trade, capital flows, legitimately help reduce high/prohibitive tax burdens on business or even assist in fulfilling people's natural and legitimate desires for asset planning and protection.
Some of the most obvious benefits of using a cellular structure are: -
Insurance:
Affordable alternative insurance solutions tailored to meet your objectives – including self managing ones own insurance requirements - isolating low risk structures from high risk structures.
Asset Protection:
PCC’s can provide a sophisticated form of "asset protection" in protected cells, which are not affected by any outside or unrelated claim from creditors and/or a liquidator and/or similar entity. Assets of a cell can not be attacked in circumstances where the cell has no direct involvement in a matter giving rise to a liquidator’s actions.
Investment:
A PCC can provide a platform to manage one's own assets and investments, which in the context of world stock markets today may prove more profitable than those selected by professional managers of investments. A protected cell company may pay a dividend (a "cellular dividend") in respect of cell shares and earnings on those shares.
Success Contingencies:
A PCC can arrange for insurance cover to meet claims for a success fee. This is particularly beneficial where executive remuneration is dependent on the success of a particular transaction. This type of insurance is similar to “prize insurance” for such things as hole in one prize cover etc’. This can assist companies and their senior executives meet their financial goals and objectives without unnecessary attention.
