Protected Cell Company (PCC)

  

Categories: Company Management

We’d like everyone to close their eyes, count slowly to ten, and picture a garage. And not just any garage. Picture a huge garage with, like, ten cars in it. Maybe there’s a brand-new Jaguar over here, maybe there’s a ten-year-old Subaru Outback over there. Okay, everyone got their garage pictured? Great. Now let’s say that one of those cars—let’s go with the Jag—is out on the road when, all of a sudden, it’s involved in a major car accident. The vehicle isn’t totaled, but it’s close. That really sucks, but the good news is that none of the other nine cars were affected by the Jag’s accident, even though they all share a garage.

This is kind of how a “protected cell company,” or PCC, works. There is one overarching legal entity—the garage—that oversees and manages all the little protected cells, which are the cars. Each cell operates on its own, and if it incurs liabilities (like our Jaguar), those liabilities are its own only, and do not get pushed off onto the other cells.

Some folks out there might be thinking, “Gosh, PPCs sound a lot like segregated portfolio companies, or SPCs.” To them, we would say...yes they do, because they’re the same thing.

And others might be saying, “Gosh, this sounds like your standard parent company-subsidiary corporate structure.” To them, we would say...sort of, but there are some significant differences. For one, PCC cells are a lot more financially and legally separated than sister companies are. And two, parent companies and their subsidiaries are everywhere, but PCCs only exist in a handful of places, like the Cayman Islands, Bermuda, and the state of Delaware.

The whole purpose of this arrangement is so that, if one cell goes belly-up, the other cells can’t be held liable for its losses. So far, this theory has never actually been tested in court, so we don’t know if cells would be legally treated like subsidiaries…or like the separate entities they sometimes really want to be.

You can open your eyes now.

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