Crafting Cell Captives

This paper was written by Johnson Lambert’s Josh Partlow, CPA and Spring Consulting Group’s Karin Landry, CEBS, ACI, CLTC, GBA.

Entities are increasingly looking to utilize cell captive structures to achieve various business, financial and risk management goals. The evolution of cell structures using incorporated and unincorporated cells has resulted in various financial reporting and regulatory models, which are important for business leaders to understand while crafting such programs. Obtaining an understanding of the various requirements can be slow and cumbersome, given the complexity of accounting guidance on consolidation found in the Generally Accepted Accounting Principles (GAAP) in the United States. Complexity from the GAAP ultimately leaves many cell programs with financial reporting that do not align with the business purpose of the entities.

To avoid this pitfall, entities need to understand the evolution of cell structures, how cell financial reporting has developed, and how the GAAP guidance is applied to cell structures. It is not necessary to know each nuance of the GAAP guidance; however, it is important to sufficiently understand the specific guidance from a cell structure’s perspective to structure a cell program where the business purpose aligns with the entity’s financial reporting.

To help business leaders make better informed decisions and find new ways to use this uniquely adaptable captive structure, a summary of the GAAP guidance applicable to cell structures follows. We also highlight key obstacles cell structures can avoid and provide illustrations of cell structures.