DEFINITION of 'Protected Cell Company (PCC)'

A corporate structure in which a single legal entity is comprised of a core and several cells that have separate assets and liabilities. The protected cell company, or PCC, has a similar design to a hub and spoke, with the central core organization linked to individual cells. Each cell is independent of each other and of the company’s core, but the entire unit is still a single legal entity.

BREAKING DOWN 'Protected Cell Company (PCC)'

A protected cell company operates with two distinct groups: a single core company and an unlimited number of cells. It is governed by a single board of directors, which is responsible for the management of the PCC as a whole. Each cell is managed by a committee or similar group, with authority to the committee being granted by the PCC board of directors. A PCC files a single annual return to regulators, though business and operational plans of each cell may still require individual review and approval by regulators.

Cells within the PCC are formed under the authority of the board of directors, who are typically able to create new cells as business needs arise. The articles of incorporation provide the guidelines that the directors must follow.

Creditors seeking funds from a particular cell are unable to seek recourse from that cell, since the other cells and the company’s core have their own separate assets. This form of organizational structure is used by insurance and reinsurance companies. Creditors may also have access to core assets of the company. Each individual cell is often expected to keep collateralized underwriting risk on its own within the cell.

Financial institutions, such as banks, may create PCCs in order to create insurance products from banking products. In this way it is creating a special purpose vehicle (SPV) to securitize a transaction.

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