Cayman Sandwich

What is the Cayman Sandwich? 

The Cayman Sandwich is a three-layer corporate structure that Venture Capital funds require before investing in Latin American startups. The startup operates normally in its home country, but investment contracts and corporate governance are formalized in the Cayman Islands; a neutral, tax-free jurisdiction with a Common Law legal framework.

LAYER	JURISDICTION / ENTITY	ROLE IN THE STRUCTURE
1st  Cayman	Cayman Islands — Holding (Exempted Company)	Issues shares. Govern investment contracts. No tax on profits or distributions.
2nd  Delaware	Delaware, USA — Intermediary LLC	Legal shield between the holding and the operating company. Excellent Common Law legal framework.
3rd  LATAM	Founder's country — Operating Company (OpCo)	All commercial activity, employees and intellectual property. Operates under local law.

Capital flows downward: Cayman receives the investment → transfers it to Delaware → Delaware injects it into the OpCo. Investors receive shares or convertible instruments (SAFEs, notes) at the Cayman holding level.

Why do investors require it?

Liability Risk Latin American courts can pierce the corporate veil unpredictably, especially in labor and environmental disputes. Without this structure, a fund could be forced to cover a portfolio startup's debts, with contagion spreading across all its investments.

Rigidity of Corporate Law Latin American civil law was designed for traditional businesses, not Venture Capital. It makes standard instruments like convertible preferred shares, stock options and drag-along rights difficult or impossible. Without legal flexibility, investors simply don't invest.

660M inhabitants in LATAM (2× USA)

$6T Combined regional GDP

34 Private startups valued at USD 1 billion or more in 2021

150+ new VC funds (2020–2023)

Benefits: how it protects every party

Five concrete advantages that explain why this structure became the market standard in LATAM.

🛡	Liability Shield	A creditor must pierce the veil of THREE entities in THREE separate jurisdictions. The cost makes litigation practically unviable. The fund and its investors are fully shielded.
⚖	Familiar Legal Framework	The Cayman legal system derives from UK law, practically identical to Delaware. US and UK investors operate with full legal certainty from the first close.
📋	Full VC Instrument Suite	The structure natively supports all standard venture capital instruments: convertible preferred shares, stock options, drag-along rights, anti-dilution protections and pro-rata rights, without the interpretive friction introduced by civil law.
💰	Zero Tax in Cayman	The structure eliminates tax friction at the holding level: no tax on income, capital gains or distributions. The result is a superior net return for limited partners and a clean carried interest with no tax erosion along the way.
🚀	Exit Flexibility	The structure offers multiple exit points. The seller chooses the layer that optimizes the transaction. Cayman-level divestments are not subject to corporate capital gains tax, attracting a broader range of buyers and eliminating friction in negotiations.

Costs: an investment, not an expense 

Like any solid structure, the Cayman Sandwich requires an upfront investment. Knowing it in advance is the difference between a smooth transition and an unpleasant surprise at the worst moment.

1	Setup and Maintenance	A single specialized firm coordinates all three jurisdictions, no need for the founder to manage multiple lawyers in parallel. Predictable and transparent annual costs: registration, resident agent and accounting compliance Maintenance is light compared to the cost of not having the structure when a fund comes knocking.
2	Funding Rounds	The structure streamlines every future round: investors know the format, documents are standard and closings are faster. Term sheets, SAFEs and convertible notes are negotiated on Common Law terms, the language international funds already speak. Each round reinforces the structure and increases its value. Due diligence becomes simpler, not more complex, over time.
3	Exit: planned from day one	A well-designed structure from the outset anticipates exit scenarios and keeps all options open. The exit can be structured at any of the three layers depending on the buyer profile; local or international. With the right advisory, the exit is the moment the structure proves its full value, not a last-minute burden.

Every structure is different. At Patton, Moreno & Asvat, we work closely with founders, funds and family offices to design, incorporate and maintain venture capital structures tailored to your specific goals. If you are considering the Cayman Sandwich, or any other offshore structure,  we would be happy to assist you. Feel free to reach out to Ebrahim Asvat at easvat@pmalawyers.com or Lizette Salazar at lsalazar@pmalawyers.com