The long-awaited limited partnership fund regime in Hong Kong
Introduction
The Limited Partnership Fund Ordinance (Cap. 637) (the “Ordinance”), which will take effect on 31 August 2020, introduces a new legal structure for private funds to be established in the form of limited partnerships in Hong Kong (the “New Regime”). In this article, we will walk you through the key features of the New Regime and highlight the major differences between a Cayman exempted limited partnership (the “ELP”) and a Hong Kong limited partnership fund (the “LPF”).
Key features of the New Regime
|
Key features
of the New Regime |
|
Meaning of a LPF |
A LPF is an arrangement in
respect of any property registered as a limited partnership fund under
section 12 the Ordinance, where such arrangement is managed as a whole by, or
on behalf of, persons operating the arrangement, and the contribution of
persons participating in the arrangement, and the profits and incomes from
which payments are made to them, are pooled. |
|
Legal personality |
The LPF is not a legal person. |
|
Parties |
General Partner (“GP”) |
·
Responsible for the
management and control of the LPF. ·
Only one GP which may be an
individual, a Hong Kong private company, a registered non-Hong Kong company,
or a domestic or offshore limited partnership. ·
With unlimited liability
for all debts and obligations of the LPF. |
Limited
Partner (“LP”) |
·
Investors who contribute capital to the LPF. ·
At least one LP, which
may be an individual, a corporation, a partnership, an
unincoporated body, or any other entity or body. ·
With liability limited to
the amount agreed to be contributed by the LP if such LP takes no part in the
management of the LPF. Certain activities are explicitly excluded in Schedule
2 of the Ordinance to be regarded as management of the LPF, including but not
limited to serving on a board or investment committee of the LPF, taking part
in a decision of admission or withdrawal of a partner and advising or
approving the GP or IM on business, accounts, valuations. *please note
that not all partners (including
GP and LP) are corporations in the same group of companies. |
|
Investment Manager (“IM”) |
·
To carry out day-to-day investment management
activities of the LPF. ·
GP must appoint in the capacity of the LPF an IM (who may be the GP
itself). An IM has to be a Hong Kong resident who is at least
18 years old, a company, or a registered non-Hong Kong company. |
|
Auditor |
Qualified auditor should be appointed to
carry out annual audits
of financial statements of the LPF. |
|
Custodian (optional) |
·
The GP shall ensure proper custody arrangement for
the assets of the LPF. ·
Not required to appoint a custodian under the Ordinance.
However, if the GP/IM is licensed by SFC to carry out Type 9 regulated activity
(asset management), the SFC’s Fund Manager Code of Conduct will apply and the
GP/IM shall (i) exercise due skill, care and diligence in selecting and
appointing an independent custodian, or (ii) if self-custody is adopted, the
GP/IM shall ensure it has policies, procedures and internal controls in place
to separate the custodial functions from the fund’s management functions. ·
The custodian should be (a) a registered trust
company, (b) an authorised financial institution or subsidiary of a licensed
bank, (c) a banking institution or trust company outside Hong Kong that is
subject to prudential supervision, or (d) any other appropriately qualified
institution. |
|
Authorized Representative (“AR”) |
If the GP is (a) another LPF or (b) a non-Hong
Kong limited partnership fund without a legal personality, an AR should be appointed for the
management and control of the LPF. |
|
Responsible Person for AML/CFT measures (“RP”) |
A RP should be appointed to carry out measures
under Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap.
615). No person may be appointed as a RP unless such person is an authorised
institution, a licensed corporation,
an accounting
professional or a legal professional. |
|
Registration of a LPF |
Administration Authority |
Hong
Kong Companies Registry (“CR”). |
Application submission |
The application for a LPF registration
must be submitted on behalf of the GP by a Hong Kong solicitor or law firm. |
|
Registration Certificate |
A certificate of registration of
LPF will be issued by the CR upon completion of registration and is
conclusive evidence that the fund is registered as an LPF. |
|
Business Registration |
GP must
also apply for a business registration certificate
for the LPF within 1 month after the registration date of the LPF. |
|
SFC registration or authorisation |
The LPF is not required to be
registered or authorised by SFC unless it is offered to non-professional
investors. |
|
Operation of a LPF |
Minimum Capital Requirement |
There is no statutory minimum capital requirement. |
Investment Restrictions |
There
is no statutory investment restriction. |
|
Registered Office |
The
LPF must
have an office in Hong Kong to which communications and notices may be sent. |
|
SFC licence |
To carry out regulated activities in Hong
Kong, either the GP or the IM must be licensed by the Securities
and Futures Commission of Hong Kong (“SFC”). Should you need advice on obtaining a SFC licence,
please feel free to contact us. |
|
Withdrawal of Capital Contribution |
Only permitted if the LPF remains solvent following such withdrawal. |
|
Distribution of profits and assets |
Only permitted if the LPF remains solvent following such distribution. |
|
Filing of Annual Return |
GP must file an annual return with CR within
42 days after each anniversary of the date on which the LPF’s certificate of
registration is issued. |
|
Filing of notification of certain changes |
A notification of change together with the
specified fees (if applicable) should be filed for any reportable
changes relating to the LPF.
|
|
Disclosure of information
of the LPF |
·
Disclosable information includes (i) name, address of the
registered office and principal place of business of the LPF; (ii) investment
scope of the LPF; and (iii) name and particulars of the existing and former
GP, IM, RP and/or AR of the LPF. ·
Non-disclosable information (records kept at LPF’s registered office or any other place made known to CR and may be inspected by
Government Authorities only) include (i) register of partners; (ii) audited financial statements of the
LPF; (iii) documents, records and files of customers of the LPF for AML/CTF purpose;
(iv) documents and records of each transaction carried out by the LPF; and
(v) controller of each of the partners in the LPF. ·
Limited partnership agreement is not required to
file with the CR. |
|
Winding up |
·
The LPF may be dissolved without a court order. ·
The LPF may also be liquidated as an unregistered
company for the purposes of Companies (Winding Up and Miscellaneous
Provision)(Cap. 32), that means a creditor and a partner may present a winding
up petition to the Court in Hong Kong. |
|
Stamp duty |
·
The partnership interest of the LPF will not be
considered as “stock” so no stamp duty is chargeable for any transfer,
contribution or withdrawal of partnership interest in cash or for a cash consideration. |
|
Profit tax |
·
The LPF should not incur Hong Kong profits tax on
qualifying income earned by it if it satisfies all of the conditions set out in
the Unified Fund Tax Exemption regime under IRD practice note DIPN 61. ·
While qualified LPFs may enjoy profits tax
exemption, Hong Kong-based managers or advisors arranging or conducting the
specified transactions remain chargeable. ·
The Government also plans to offer tax concessions
for carried interest issued by LPF operating in Hong Kong, subject to fulfilment
of certain conditions. |
Major differences between a Cayman ELP and a HK LPF
The “Cayman ELP” in the table below refers to such fund registered under the Cayman Islands’ Private Funds Law, 2020 (the “PF Law”).Please note that most of the existing Cayman ELPs are required to register under the PF Law and are subject to the regulation of the PF Law. The most common exemption is a fund with one investor only.
|
Cayman ELP |
HK LPF |
GP |
At least one (1). |
One (1) only. |
Appointment of AR |
No. |
Yes if the GP is (a)
another LPF or (b) a non-Hong Kong LPF with no legal
personality. |
Custody arrangement for
fund’s assets |
Proper custody arrangement is required so either a custodian or a
person for assets’ title verification should be appointed. |
Proper custody arrangement is required but not a
must to appoint a custodian. |
Valuation of assets |
Yes (at least annually). |
Not required, but
recommended. |
Financial statements |
Annual audit is required and submission of audited financial statements
to the Cayman Islands Monetary Authority (“CIMA”) is required within 6 months of the relevant financial year
end. |
Annual audit is required but not necessary to submit an audited
financial statements with CR. |
Official registration
fees and annual maintenance fees charged by the relevant authority |
More expensive. |
Cheaper. |
·
Formation & Initial registration
fees |
Around USD20,000, including but not limited to:- ·
Initial ELP registration fee - USD1,900. ·
Annual economic substance notification -
USD 450-500. ·
Initial private fund registration and
filing fee - USD4,634. ·
Filing of limited partnership agreement - USD366. |
HKD3,034 (HKD2,555 is
refundable if the application is unsuccessful). |
·
Annual maintenance fees |
·
Government fee - USD2,440. ·
Annual economic substance notification -
USD 450-500. ·
Annual private fund registration fee –
USD4,268. ·
Cayman GP – USD9,000. |
Annual return filing - HKD105. |
·
Notification of
reportable changes |
·
Around USD366 for filing of each updated
document with CIMA. ·
Around USD500 for notifying CIMA of any
change of directors of the General Partner. |
·
HKD26 for each reportable change, such as change
in address, location of records and investment scope of the LPF; change of identity,
or particulars of GP/AR/IM/RP, etc. |
Conclusion
The introduction of the New Regime is going to strengthen the edge of Hong Kong as an international asset management hub and will foster the growth of our local private equity industry. We shall keep a close eye on the implementation of the New Regime starting on 31 August 2020 and will keep you updated when there is future development of the New Regime. For those who are interested in exploring the New Regime, please do not hesitate to contact us.
For enquiries, please feel free to contact us at: |
E: cc@onc.hk T: (852) 2810 1212 W: www.onc.hk F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong |
Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors. |