Introduction

The Protected Cell Company is a corporation governed by the provisions of the Companies Act, 1972 and the Protected Cell Company Act, 2003 as amended by the Protected Cell Companies (Amendment) Act, 2004.

An existing company can be converted into a PCC if so authorized by its Articles. The incorporation of a PCC or a conversion into a PCC cannot be implemented except with the authority of and in accordance with the terms and conditions of the written consent of the Seychelles International Business Authority ("SIBA").

The liabilities of a particular cell are its liabilities alone and creditors of that particular cell cannot claim against the assets of any other cell in the PCC.

In addition to the normal responsibilities of directors under the Companies Act, 1972, directors of a PCC appointed by the core shareholders, must at all times ensure both that the assets and liabilities of each cell are identified and distinguished from the assets and liabilities of any other cell in the PCC and that all the cellular assets and liabilities are identified and distinguished from the core assets and liabilities of the PCC. Furthermore, the directors of the PCC are responsible for the PCC's own (core) assets and liabilities as represented by the PCC's core shares as well as the overall supervision and management of the PCC. They are therefore also responsible for ensuring that the cells are properly run by the owners thereof as provided in the company law and protected cell company legislation in compliance with generally accepted business management and accounting principles.

Main Features

The main features of the Seychelles PCC are as follows:

1. A PCC may create one or more cells.

2. A PCC is a corporation i.e. a legal person. A cell within a PCC is not a legal person.

3. The directors of a PCC can establish within the PCC as many cells as they see fit.

4. Each cell contains its own assets and reserves ("cellular assets") which are segregated from:-

• the assets and reserves of all other cells in the company;
• as well as the Core Assets. Core Assets are assets of the Company that do not belong to any cell therein.

5. "Reserves" includes retained earnings, capital reserves and share premiums.

6. Creditors of the company in respect of a particular cell will only be able to claim against the cellular assets of that cell. Such creditors have no claim against the assets of any other cell in the company. The cellular assets of the other cells in the PCC are absolutely protected from creditors who are not creditors of those other cells.

7. Liabilities of the PCC which are not attributable to any cell therein will be a liability against the core assets only.

8. In limited circumstances, creditors of a particular cell may have recourse to the core assets of the PCC. (In practice, core assets will tend to be small in comparison with the total assets in a cell.).

9. A PCC may create and issue shares in respect of any of its cells ("cell shares") which will form the "cell share capital" for the particular cell for which the capital was subscribed.

10. A PCC may pay a dividend ("a cellular dividend") in respect of the shares of a particular cell. Cellular dividends can only be paid by reference to the profits, assets and liabilities of that particular cell only. No account is taken of the profits, losses, assets and liabilites of any other cell or the non-cellular profits, assets and liabilities.

11. A PCC can create and issue its own shares just like any other company governed by the Companies Act ("core shares"/non-cellular shares). Such shares represent the PCC's non-cellular assets only and a "non-cellular dividend" can be declared therefrom.

12. Apart from the normal responsibilities of directors under the Companies Act 1972, there are additional specific responsibilities imposed by the Protected Cell Companies Act, 2003 to keep:

• all cellular assets separate and separately identifiable from the company's core assets at all times and;
• all cellular assets attributable to each cell separate and separately identifiable from all assets attributable to all other cells in the PCC at all times. 

These requirements do not preclude cellular assets and/or non-cellular assets from being held:

1. by or through a nominee;
2. by a company the shares and capital of which consists of :

• non-cellular assets; or
• cellular assets; or
• a combination of both

nor do they prevent the directors from allowing its cellular assets, non-cellular assets or a combination of both from being collectively invested or collectively managed by an investment manager provided that at all times they keep all cellular and non-cellular assets separate and separately identifiable.

13. A PCC must inform anyone with whom it carries out transactions that it is a protected cell company and where the transaction is with a particular cell, it must identify the cell with which the person is transacting, unless the transaction is not with respect to a particular cell.

14. The suffix "PCC" or "Protected Cell" must appear after the name of a protected cell company at all times.

Commercial Attractions and Uses of the PCC

PCCs can be used for insurance business, mutual funds and any other business activity approved by SIBA as provided in the Protected Cell Companies (Amendment) Act, 2004.

PCCs can be useful for a number of reasons:-

1. It is possible in many jurisdictions for the Articles of a company to provide for distinctions between different classes of shares thus distinguishing between the rights of shareholders in one class for example, with preferential rights in relation to dividends and/or capital and another class of say, ordinary shares (e.g. a Class A, Class B, Class C shareholding structure). Thus, a specific class of shares may be issued entitling the shareholders of that class to the net profits of a specific venture whilst the shareholders of another class may be entitled to the net profits of a totally different venture in which the company is engaged. Whilst such arrangements may be effective both commercially and legally both between the different classes of shareholders and between the shareholders and the company concerned, they do not restrict the rights of creditors against all the assets of the company. In contrast, in the case of a PCC, a creditor can only claim against the assets of the cell with which he has been conducting business (and possibly, in limited circumstances, against the core assets) and not against the assets of any other cell in the company. Therefore, an investor can invest in a single cell in a PCC and possess rights over the assets, liabilities, profits and reserves of that cell only whilst being one of many cellular and core shareholders in the PCC. At the same time, he can be confident that if another cell in the PCC is faced with claims from its creditors, those creditors have no remedy against his cell or any other cell in the company with which they have not transacted business.
2. In a number of jurisdictions, the tax legislation provides that tax resident investors who control a funding vehicle offshore which is controlled by a small number of people (e.g. five or fewer persons) will be taxed on the income of the offshore investment vehicle as it accrues, even if it has not been distributed to the taxpayer/investor. In order to avoid this type of situation, investors tend to look for investment vehicles which have a large number of investors. However, this can have unsatisfactory consequences:  

• it exposes the investor to liabilities which may arise to other investors in a particular fund; and
• in order to minimise the exposure to these cross-over liabilities the management of the fund will be inclined to appoint one fund manager only with the consequential effect that investor freedom is limited.

Subject to the tax rules in particular jurisdictions, these problems can be avoided/minimised where an investor uses one cell in a PCC for his investments.

• Many investors would like to invest a small percentage of their wealth in speculative ventures which can attract a relatively high return and a correspondingly higher risk. However, enterprises which promote investments of this kind tend to accept "large investors" only say, a minimum of $ 1 million being a maximum of 10% of the investor's wealth. If small investors use a PCC, promoters of speculative funds will regard the PCC as one investor and will thus accept what in effect, is an aggregated investment. Furthermore, where large investments are made, promoters often waive their placement fees. Thus, a PCC in a position to commit large amounts can possibly obtain significant cost reductions for the investor. Therefore, investors in a cell in a PCC can have the opportunity to invest possibly with shareholders in other cells, in potentially high profit, speculative investment opportunities at possibly, relatively low cost whilst at the same time investing less money than they might otherwise have done as individuals investing alone in a large, speculative fund.