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posted 2 years ago
By Rossana Chu and Jacky Chan:
The Hong Kong government has implemented tax incentives and established regimes for re-domiciling overseas funds to Hong Kong. These moves make Hong Kong a more attractive place for setting up and managing funds. In this article, we will discuss the main differences between the two investment fund structures in Hong Kong, namely, open-ended fund company (“OFC”) and limited partnership fund (“LPF”).
Strengths of an OFC and an LPF
The choice between an OFC and an LPF depends on various factors including market practice, manager’s preference, background of investors and their familiarity with the structure, regulatory considerations, nature of the fund, investment scope, and tax incentives.
In general, an OFC can be established as an open-ended fund or a closed-ended fund, a standalone fund or an umbrella structure with multiple sub-funds, and a public or private fund. The following are some of the key strengths of an OFC:
An LPF is a fund that is structured in a limited partnership form and does not have a legal personality. The founder/promoter is a key operator, takes the role of the general partner (“GP”) and has unlimited liability. Investors are limited partners (“LPs”) and enjoy limited liability up to the amount of their agreed contributions. The structure is used for the purpose of managing assets for investors as LPs and is a popular form of private equity and venture capital funds. The key strengths of an LFP include:
Key Operators
One main difference between the two structures is that the establishment of an OFC requires SFC’s approval. The SFC adopts a one-stop process for approving an OFC, i.e. the applicant only needs to submit an application to the SFC which will then liaise with the Companies Registry of Hong Kong.
Provided the legal requirements are met, an LPF can be registered with the Companies Registry. SFC approval is not required for setting up an LPF.
This different registration process is mainly due to the more stringent legal requirements on the operators of OFCs, such as:
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Note: This material has been prepared for general information purposes only and is not intended to be relied upon as professional advice for any cases. Should you need further information or legal advice, please contact us.
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