The Protected Cell Company (PCC) Act 1999 provides for a company holding a Global Business Corporation (GBC) licence be set up as a Protected Cell Company and to create cells within its capital for the purposes of segregating the assets within that cell from claims related to assets of another cell. A Protected Cell Company (PCC) is a Special Purpose Vehicle that authorises the lawful separation of assets owned by each cell of the company. A PCC is a corporate structure, limited by shares, which consists of a core (“non-cellular”) and an indefinite number of cells (“cellular”). In this structure, each cell is isolated from one another and operates separately. PCC allow for the segregation of risks, as well as assets and liabilities, of different individuals and/or corporate entities under a shared structure.
Therefore, the liability of the PCC arising from transaction attributable to one cell will affect its assets only. For instance – and thanks to the segregation, in case of bankruptcy of a specific cell, creditors shall utilise the assets of that cell – and not of the others within the structure – to honour its liabilities.
Common uses of PCC
PCC are effective legal structures to carry out two types of activities, global insurance business and investment funds.
Investment Funds can be set up as Umbrella or multi class funds with different classes of shares which provides each individual share class the same limited liability that would be obtained if separate corporate structures were used for each category of investors.
Insurance companies can set up a PCC to segregate the assets and liabilities of its life, pension and individual policyholders.
Incorporation
A company in Mauritius may be incorporated as a PCC.
- An existing company can convert into a PCC, on condition that its constitution authorises this conversion.
- Through continuation, a company incorporated in a foreign jurisdiction can be registered as a PCC and carry on its activities in Mauritius.
Distinct name or designation
A PCC must have the words “PCC” or “Protected Cell Company” at the end of its name, with each cell having its own designation or name. It could be the first, last or full name of the holder of the shares of that particular cell, or it could be a number and/or alphabet that will provide for the preservation of the holder’s anonymity.
A foreign company can continue to operate as a PCC in Mauritius, using the name designated in its articles of continuation and ending with the words “Protected Cell Company” or “PCC”.
Single Legal Entity
A PCC can have a multitude of cells. However, each one needs to have its own, distinct name or designation. Even though a cell is legally independent from the others, it is not a legal entity and is therefore created within the PCC. Moreover, the activities of each cell must be congruent with the overall business activity of the PCC.
Capital Requirement
No minimum capital is required for a Protected Cell Company (PCC) and for each of its cell. However, according to the nature of business (such as an insurance business) of the PCC, the FSC has the authority to recommend certain capital requirements.
Segregation of assets and liabilities
A Protected Cell Company (PCC) may also segregate different areas of risk and activity in dissimilar cells. This is known as Captive Insurance Companies.
Also as previously mentioned, a Protected Cell Company (PCC) is made up of a core (“non-cellular”) and cells (“cellular”). Such are their assets and their liabilities.
Segregation of non-cellular assets and liabilities
Assets
Non-cellular assets are assets that belong to the PCC (“core”).
These assets are not attributable to any cell.
Liabilities
- A Protected Cell Company has the responsibility and is required to inform any person (legal or natural), with whom it is dealing or transacting, that it is a PCC; and
- Except business is made with no relation to any particular cell, a PCC is required to identify and inform this person with which cell it is dealing.
Should the PCC fail to respect the above-listed conditions, its directors will be personally liable to that person regarding that particular transaction. Unless they acted fraudulently, neglectfully, or in bad faith, the directors have the right to indemnity against the non-cellular assets of the PCC relating to their personal liability.
Segregation of cellular assets and liabilities
Assets
Cellular assets are assets that belong to particular cells of the PCC.
They are not attributable to the Protected Cell Company.
The directors of a PCC have the responsibility and are required to hold:
- Cellular assets independently and easily identifiable from non-cellular assets; and
- Cellular assets distinctly and easily identifiable from cellular assets pertaining to other cells.
Liabilities
The liabilities of one cell extend to the assets of that particular cell, which is principally liable. In the case where the assets of that cell are not sufficient to honour its liabilities, then the non-cellular assets of the PCC will be liable.
It is important to point out that the liabilities of a particular cell do not have any impact on the assets of the others. On another note, if the liabilities of the PCC that do not relate to any transaction linked to a particular cell, the PCC’s non-cellular assets will bear all liability.
Issuance of shares
PCCs can issue shares in the capital of its cells (“cell shares”). The earnings derived from the issuance of cell shares will be consolidated within the cell’s assets. The income generated from the issuance of shares, other than the shares of its cell, will form part of the non-cellular assets of the PCC.
Core shares will carry voting rights of the PCC. Cellular shares, on the other hand, have all voting rights pertaining to one cell. This gives maximum protection to the investors of each cell with regard to its corporate governance issues.
Dividend
Dividends to the shareholders of each cell are paid independently from one another. While dividends are payable only by reference to the profits made by each cell, the PCC will be taxed as a single legal entity.
Investment Management
The investment management is usually passed on to another person or entity having specialised knowledge in the field. The Investment Manager will normally hold the core shares of the PCC for effective investment decision making. Indeed, as these shares carry all of the PCC’s voting rights, the investors consent to grant the actual running of the Fund to that person/entity and its designated directors and administrator.
Activities a Protected Cell Company can undertake in Mauritius
A PCC is a suitable vehicle for investment funds, insurance business and asset holding.
A PCC can engage in the following activities:
- Asset holding and managing of assets (or portfolios of assets);
- Structured Finance Businesses;
- Collective Investment Schemes (CIS) and Closed-ended Funds (CEF);
- Specialised CIS and CEF; and
- External insurance.
For instance, an investment fund can consist of different cells that invest in segregated portfolios, in different countries or different industry sectors (e.g. Private Equity Fund structured as a PCC).
Mauritius: the ideal jurisdiction for the setting up of a Protected Cell Company
While a PCC can also be formed in other jurisdictions such as the Isle of Man, Jersey or Guernsey, the Mauritian legislation is more flexible compared to others.
The key comparative advantages of Mauritius for the establishment of a Protected Cell Company (PCC) are:
Mauritius has a wide network of Double Taxation Avoidance Agreements (DTAA) and Investment Promotion and Protection Agreements (IPPA);
- No capital gains and inheritance tax;
- No withholding tax on distributions made to any country; and
- Strategic geographic location with convenient time zone (GMT+4).
In addition, other interesting factors of the Mauritius IFC include:
Flexible and appropriate legislation;
- Exchange liberalisation;
- Free repatriation of profits and capital;
- No capital duty on issued capital;
- Confidentiality and banking secrecy; and
- Strong regulatory framework.
Taxation of PCC
PCC are licensed as a GBC and would therefore be subject to a tax rate of 15% on their income. However, a PCC have the option of either claiming foreign tax suffered as a tax credit against their Mauritius tax liability or a partial exemption of 80% on certain income subject to meeting pre-defined substance requirements in Mauritius.
The criteria for meeting the substance conditions depend on the nature of the income and licensed activity.
Please contact us on office@venturecorporateltd.com for information about PCC.