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Protected cell company – a future company model?

A protected cell company (“PCC”) is a corporate structure which was initiated and legalized the first time in 1997 by legislators in Guernsey[1] – an island and a dependency of the British Crown with a legal system relatively independent of the United Kingdom[2].

This corporate structure presented itself as a solution to protect investment and insurance companies in Guersey. The structure became very popular and got more recognition following the collapse of some financial and insurance companies in consequence of the World Trade Center event in 2001 in the U.S.[3], and it was widely legalized in such many countries as: Islands, Bermuda, Malta Gibraltar, Cayman Islands and some states of the United States of America.[4] It is considered a landmark initiative in the world of corporate finance.

A PCC is ONE single company with its assets being allocated and protected in many cells which are independent of one anotherand of the company’s corein terms of their assets. We will take an example to analyze the operation of a protected cell company.

Supposing that an investor has two real estate projects B and C, and many shares of different companies. To prevent these projects affecting each other, it is a normal solution for the investor to establish 3 independent companies for projects B, C and the shares. However, the operation costs of the 3 companies are large and not economical, not to mention the appointment/recruitment of personnel for these companies. Instead, the investor will set up company A and divide this one into 3 cells: Cell B “contains” project B, Cell C “contains” project C, and Cell D “contains” the shares. The company is structured as follows:

Cell B (Project B) Cell C (Project C) Cell D (The shares)

Each cell is independent of one another and has its own regulations, so when a cell ends up in failure (e.g. project B suffers losses and goes bankrupt), it will not affect the projects in other cells. In other words, the creditors of protected cell company A in relation to project B cannot put their hands on the assets specified as belonging to cell C (project C) or company A itself.  Unlike the corporations in Vietnam which are comprised of a parent company and many subsidiaries, this protected cell company is still a single legal entity with the same organization and tax status as a normal company, and an operational charter applicable throughout the company which expressly states it is a protected cell company.

However, in order to protect the creditors’ interests in this case, protected cell companies are obliged to keep their creditors informed of their special operational form. For example, Protected Cell Companies Ordinance of Guernsey requires these companies to inform their contracting parties of the fact that “we are a protected cell company” and you are entering into a contract with a “cell” in the company. The contracting parties/potential creditors will thereby be aware of the limit of the debt that they can claim.[5]

Prominent advantages of the protected cell company

With these characteristics, the protected cell company is clearly an extremely attractive business model that limits the company’s financial risks thanks to its various advantages.

The biggest advantage is to limit bankruptcy risk against the company. Since each cell has independent financial obligations, the bankruptcy of a cell does not lead to the bankruptcy of a company or its remaining cells. This helps protected cell companies become the top choice for venture capital firms or investment funds.

Next, a protected cell company is formed out of separate and independent “cells” that are clearly viewed as faster and more flexible than multiple subsidiaries and affiliated companies established by a parent company under the process of regular licensing while it can still achieve the goal of separating assets. Each “cell” can be promptly formed at any time at the company’s discretion to catch up with the fast-moving economy.

In addition, from a commercial perspective, a protected cell company is clearly more attractive to investors than a parent company with multiple subsidiaries thanks to cost-effective operation and management. Let’s imagine a company invests in dozens or even hundreds of investment projects, if for each project, the company must set up a subsidiary (to minimize risk), including its own board of directors and accounting personnel, which is really a waste of resources and costs.

Given these advantages, we can see it is not accidental that many countries in the world, including many U.S.A. states have recognized and used the model of this as a tool to protect financial market stability. It is because they themselves have experienced the instable insurance market and multiple implications thereof. This is also the reason why this model has been more widely applied to many different industries other than the original investment and insurance sectors.

Should we consider applying the protected cell company model in Vietnam?

Given legal grounds, the protected cell company model is created to protect the separation of assets between the company and their owner and the owner has the right to establish an unlimited number of companies for his different projects. Therefore, rather than getting the owner to follow the normal licensing process for all those companies, the legal corridor can enterprise owners the right to self-create independent “cells” set up in each of their companies. This does not deviate from the legal nature of the company. Therefore, the study of the application of this model in Vietnam is well founded.

In addition to these advantages, there remain slight hesitations about whether the interests of third parties are guaranteed. Obviously, the company is obliged to inform the contracting parties of its model and clearly divide the assets among branches or “cells”. However, it is asked whether this can ensure independent separation of the assets of the branches?
In fact, in Vietnam, many companies in the state of bankruptcy find many ways to disperse and hide corporate assets to limit losses. Will the protected cell company model, if applied, make it easy for companies to shirk their debt payment obligations?

These issues need to be learnt about and answered in a larger study. However, the said benefits of the protected cell company (PCC) model are undeniable and may be superior models of the future. The article only contribute to the concept of ​​a new company model, so that more research can be done on the possibility of applying this novel model to Vietnam.

[1] Part A brief story –




[5] Please refer to Section 11 – “Company to inform persons they are dealing with PCC” in “Protected Cell Companies Ordinance 1997” of Guernsey