Protected Cell Company (PCC)

A PCC consists of a non-cellular core and multiple segregated cells. The core handles general administration and governance, while each cell operates as a legally distinct portfolio. This structure allows a single legal entity to manage multiple, ring-fenced investment funds or asset pools, each with its own investors, assets, and liabilities.

The defining legal feature is the statutory protection between cells. Assets and liabilities of one cell are legally isolated from those of other cells and the core. Creditors of a defaulting cell can only claim against the assets of that specific cell, providing a powerful form of insolvency remoteness. This is enforced by law in jurisdictions like Guernsey and Bermuda, not just by contract.

By using a single corporate vehicle for multiple ventures, a PCC achieves significant operational efficiencies:

• Reduced setup costs compared to forming multiple standalone companies.
• Streamlined governance through a single board of directors for the core.
• Shared service model where administrative, legal, and compliance functions are centralized, lowering ongoing operational expenses.

PCCs are increasingly used to structure blockchain-based investment vehicles and custody solutions. For example, a PCC can house separate cells for:

• A Bitcoin-focused fund.
• An Ethereum staking pool.
• A venture capital portfolio of tokenized assets. Each cell's crypto assets are held in legally segregated wallets, mitigating cross-contamination risk from a hack or failure in another cell's strategy.

While similar in purpose to a Series LLC (common in Delaware, USA), a PCC offers key differences:

• Stronger Legal Precedent: PCC ring-fencing is established by specific statute, whereas Series LLC protections are newer and less tested in some jurisdictions.
• Global Recognition: PCCs, particularly from Guernsey, are widely recognized in international finance.
• Regulatory Clarity: PCCs are often designed with regulated investment funds and insurance in mind, providing a clearer path for financial services.

The core directorate governs the entire PCC and authorizes the creation of new cells. Each cell is established by a cell contract or instrument of incorporation, which defines its specific purpose, share classes, and rules. While cells have operational independence, ultimate legal authority and fiduciary duty for the entire structure resides with the core's board, ensuring centralized oversight of the segregated framework.

A PCC is a single legal entity comprised of a core and multiple cells. Each cell can hold distinct assets, have separate investors, and pursue different investment strategies. Crucially, the assets and liabilities of one cell are legally protected from the claims against any other cell or the core, a principle known as cellular segregation. This structure provides a formal, regulated framework for creating compartmentalized investment vehicles.

In DeFi, the PCC model is tokenized. Each cell's ownership is represented by a distinct ERC-20 or similar token. Investors purchase tokens corresponding to a specific cell, gaining exposure to its underlying assets. This enables:

• Programmable compliance via token transfer restrictions.
• Global, 24/7 liquidity through decentralized exchanges.
• Transparent auditing of cell assets and performance on-chain.
• Automated distributions of yields or dividends via smart contracts.

The primary DeFi application is creating structured products with defined risk/return profiles. A single PCC can host multiple cells, each representing a different product:

• A senior tranche cell offering lower yield but priority in capital repayment.
• A junior tranche cell offering higher yield but first-loss exposure.
• A specific strategy cell dedicated to yield farming, options vaults, or real-world asset lending. This allows investors to choose their risk appetite while the legal structure prevents cross-contamination if one strategy fails.

PCCs act as a bridge between traditional finance regulation and decentralized protocols. The core company is a regulated entity, handling KYC/AML, investor accreditation, and reporting. The cells and their tokens operate on-chain. This hybrid approach provides regulatory clarity for institutional capital, as the legal wrapper is well-understood by financial authorities, while the execution layer leverages DeFi's efficiency and composability.

Unlike standard DeFi vaults or liquidity pools, which are purely smart contract-based with no legal entity, a tokenized PCC adds a critical legal layer.

A PCC operates under a single corporate umbrella but establishes distinct cells, each with its own dedicated pool of assets and liabilities. The key principle is legal segregation, meaning creditors of one cell can only claim against the assets of that specific cell, not the core company or other cells. This is enforced by statute, not just contract.

• Core: The non-cellular part that manages the overall company.
• Cell: An individual, legally segregated sub-fund with its own assets, liabilities, and often its own investors.
• Statutory Ring-Fencing: The legal barrier preventing cross-cell contamination, a critical feature for investor protection.

While the concept has been adopted in various forms globally, several jurisdictions are recognized leaders in PCC legislation.

• Guernsey: The originator (1997) with the Protected Cell Companies Ordinance. It is the most established and widely used framework.
• Bermuda: Offers the Segregated Accounts Company (SAC), a functionally equivalent structure popular for insurance and reinsurance special purpose vehicles (SPVs).
• Cayman Islands: Provides the Segregated Portfolio Company (SPC), commonly used for investment funds and captives.
• Singapore: Introduced the Variable Capital Company (VCC), which, while not a pure PCC, offers similar segregation benefits and has become a hub for digital asset funds.

PCCs are a preferred legal wrapper for structuring tokenized investment products and funds in the blockchain space due to their inherent segregation.

• Tokenized Funds: Each cell can represent a distinct fund (e.g., a DeFi yield strategy, a real estate portfolio) with its own token (e.g., an ERC-20) representing shares in that cell.
• Asset-Backed Tokens: The underlying assets for a security token offering (STO) can be held within a dedicated cell, providing clear legal backing.
• Risk Isolation: A fund manager can launch multiple, thematically different strategies in separate cells without the failure of one affecting the others, a crucial feature for managing smart contract or protocol risk.

Using a PCC structure for investment funds, especially in crypto, provides several key operational and regulatory benefits.

• Cost Efficiency: Lower administrative and setup costs versus creating multiple standalone legal entities for each fund or strategy.
• Operational Scalability: New strategies or products can be launched rapidly by creating a new cell under the existing corporate license and infrastructure.
• Regulatory Clarity: Provides a clear, regulated framework for investors and regulators, distinguishing it from unaudited, purely on-chain DAO structures.
• Bankruptcy Remote: The statutory ring-fencing offers strong 'bankruptcy remote' characteristics for each cell, a critical requirement for institutional investors.

Operating a PCC involves navigating specific regulatory requirements that vary by jurisdiction.

• Licensing: The core company typically requires a license from the local financial services regulator (e.g., Guernsey Financial Services Commission).
• Cell Creation: Formal procedures must be followed to establish a new cell, often requiring notification to the regulator.
• Segregation Enforcement: The company must maintain strict accounting, record-keeping, and operational procedures to uphold the legal segregation of assets. Commingling assets between cells can 'break the cell' and void the protection.
• Disclosure: Offering documents must clearly explain the PCC structure, the limits of segregation, and the risks involved to investors.

Understanding how a PCC differs from common alternatives highlights its unique value proposition.

• vs. Standalone Corporate Funds: A PCC is more cost-effective and scalable than creating a new limited company for each fund, but may have less perceived independence.
• vs. Umbrella Fund (Master-Feeder): Both pool assets under one structure. A PCC offers stronger legal segregation between sub-funds, whereas an umbrella fund often relies on contractual segregation, which can be weaker.
• vs. On-Chain DAO/Protocol: A PCC exists in the regulated, legal world, providing enforceable rights and recourse. A pure on-chain DAO exists primarily in code and may lack clear legal personhood and investor protections.