A proven structure for risk management
Since it’s introduction in 2010, protected cell companies have been used in Labuan by domestic and international firms looking to expand their portfolio while mitigating risk.
And while this business structure can be found elsewhere in the world, there are some unique benefits that make setting up a PCC in Labuan especially worthwile.
For those who enjoy deep dives into topics, Labuan Protected Cell Companies can be found under Section 130 of the Labuan Companies Act 1990.
For those pressed for time, this post addresses practical aspects of Labuan PCCs, including:
- Common use cases
- A feature of Labuan PCCs offered nowhere else in Asia
- Fees and compliance requirements
In short, how does it help businesses – and can it help yours specifically?
Let’s begin.
What is a Protected Cell Company?
So we’re on the same page, we’ll start with a brief description of a PCC.
A Protected Cell Company is a limited liability company with a single core company (the PCC itself) from which an unlimited number of ‘cells’ can be created. The core is governed by a single board, who can then appoint similar groups to manage individual cells.
Collectively, the cells are known as a ‘captive’, and though each cell in the captive is linked to the core PCC, they are legally separated from each other and conduct business independently.
If this sounds a lot like a parent company and its subsidiaries, it’s almost the same thing, only much more cost-effective and convenient to setup and manage.
The biggest advantage of a PCC structure
While a PCC offers numerous advantages, often the most valued is its significant liability protection.
Individual cells can leverage the working capital of the PCC as a whole to meet capital requirements while being protected from the liabilities of other cells. This ensures that financial obligations of each cell is self-contained, freeing decision-makers to pursue more aggressive strategies.
With that out of the way, let’s look at several common use cases of a Labuan PCC.
Common use cases of a Labuan PCC
Though captive insurance companies is often the first answer that comes to mind, a Labuan Protected Cell Company is the ideal business structure for a variety of use cases.
Single company ownership for risk segregation
A Labuan PCC can be owned by a single company that then creates cells to segregate its own and affiliated risks. This is useful when a company wants to mitigate risks across different segments of its business. A contractor with multiple ongoing development projects, for example, could benefit from setting up individual cells for each of their development projects.
Insurance service provider ownership
Insurance service providers like underwriting managers can establish Labuan PCCs, allowing each cell to be owned by different companies, which may or may not be related to each other. This setup ensures that each cell only underwrites the risks of its owner or affiliates.
Umbrella fund structure for fund managers
Fund managers can utilise a Labuan PCC as an umbrella fund structure, creating multiple cells to cater to various business strategies, providing collective investment fund products to their clients. Each cell can target specific investment objectives or strategies.
Shariah Compliance: A Labuan-only PCC feature
Thanks to the Labuan Islamic Financial Services and Securities Act 2022, as of writing this (November 2023) Labuan is the only jurisdiction in Asia that provides Shariah-compliant PCCs.
For companies with roots in the Middle East, or any organisation otherwise interested in setting up a takaful captive or investing in Islamic mutual funds, Labuan offers the benefits of a PCC structure as you expand in ASEAN markets.
Fees & reporting requirements
Labuan PCCs must pay the following annual fees to Labuan FSA on or before 15 January each year:
| Type of fees | Amount |
|---|---|
| Insurance and Takaful On the general assets of the Labuan PCC (core) On each cell | USD9,500 USD3,000 |
| Mutual Funds and Islamic Mutual Funds On the general assets of the Labuan PCC (core) On each cell | USD1,500 USD600 |
Additionally there is a conversion fee of USD100 to convert a normal Labuan company into a PCC.
Finally, the table below shows the reporting and regulatory requirements of a Labuan PCC.
| Category | Requirement |
|---|---|
| Reporting | 1. Submit an audited consolidated financial statement of the Labuan PCC and its cells within six months after the close of each financial year. 2. Prepare separate sets of financial statements for each cell. 3. Submit statistics and information as periodically required by Labuan FSA. 4. For Labuan PCCs undertaking mutual fund or Islamic mutual fund activities, a copy of the cell’s financial statements should also be extended to each investor of the cells. |
| Regulatory | Capital Requirements for a captive insurance/takaful business: 1. Unimpaired by losses of RM500,000 (to the Labuan PCC as a whole). 2. Cells are required to remain solvent at all times. 3. The establishment of working funds for cells may be achieved through the issuance of cell shares by the Labuan PCC. Corporate Governance and Compliance to Labuan Laws: 1. Be responsible to ensure compliance with the regulatory and corporate governance requirements at all times. 2. Keep the funds for cell assets separate from the general assets. 3. Keep the cell assets and liabilities attributable to each cell separate from other cells. |
By the way, we cover Labuan company compliance in greater detail in our offshore Labuan company FAQ.
Conclusion: Pursue growth, mitigate risk
Be it a company with multiple projects, an insurance agency with different packages, or an investment firm managing an umbrella fund, a PCC bsuiness structure frees decision-makers to take risks with the reassurance that even if things go horribly wrong in one cell, there is no domino effect that might hurt the entire company.
If that sounds good, the check out our guide to Labuan company registration.
Alternatively, just click the button under the handsome man below!
Let MISHU handle your Protected Cell Company registration
MISHU’s team is experienced in helping companies swiftly incorporate their Labuan company. We would be happy to sit down over a virtual cup of coffee and understand your needs, including for specific business licenses and employment passes – so drop us a line!