Open-ended funds can be created as either companies, partnerships or unit trusts and are required to be recognised or registered by the British Virgin Islands Financial Services Commission as Private Funds, Professional Funds or Public Funds. Closed-end funds are exempt for registration with SIBA.Setting up a hedge fund in the British Virgin Islands offers:
• Relatively low cost, particularly in the context of government fees
Flexible and practical business statutes
• British Virgin Islands insolvency law is simple and effective
• Strong and reputable compliance culture
• English-based legal system, established judiciary and absence of political or sovereign concerns
• Professional infrastructure and reputation. The British Virgin Islands is well known for its established and experienced financial services sector and substantial capacity
• Compliance with international anti-money laundering, anti-terrorist financing and other financial regulatory standards
• Significant number of international tax information exchange agreements and OECD ‘white list’ status
• Tax neutral
• Service providers to the fund (investment managers, advisers, brokers, administrator, auditors etc.) may usually be located anywhere in the world
• No local audit or sign off requirement
Types of funds include:
The majority of BVI funds are set up as professional funds which are most suitable where it is likely that all investors will be sophisticated investors. Under the Act, the Securities and Investment Business Act, 2010, the minimum investment into a professional fund by all investors, other than persons connected to the investment manager, is at least US$100,000.
The requirements for a fund to be eligible to be classified as a professional fund are that (i) the shares are only made available to “professional investors” and (ii) the initial investment of such investors is not less than US$100,000 or its equivalent in any other currency.
A “professional investor” will be a person whose ordinary business involves, whether for its own account or the accounts of others, the acquisition or disposal of property of the same kind as the property, or a substantial part of the property, of the fund or who has signed a declaration that he, whether individually or jointly with his spouse, has net worth in excess of US$1,000,000 or its equivalent in any other currency and that he consents to being treated as a professional investor.
Aside from the fact that professional funds are subject to minimum investment and investor suitability requirements, the only other distinction between private and professional funds is that a professional fund, under the Securities and Investment Business Act, 2010, is permitted to operate for 21 days before receiving its license from the FSC, provided that it files its application for recognition within 14 days of commencing business. A private fund is unable to commence business until such time as it is licensed to do so by the FSC.
A private fund is essentially a fund with memorandum and articles of association which specify that it will have no more than fifty (50) investors or that the making of an invitation to investors to subscribe for shares in the fund is to be made on a private basis. Unlike professional funds (see below for more details), there are no minimum investment or investor suitability requirements for private funds.
An invitation to subscribe for shares “on a private basis” is likely to include an invitation which is either made to specified persons (however described) and is not calculated to result in shares becoming available to other persons or to a large number of investors or by reason of a private or business connection between the person making the invitation and the potential investor.
The guidelines to the Act suggest that the making of invitations to as many as 300 persons might be considered as an offering on a private basis, if it can be demonstrated that the person made the invitations to specified persons and had no deliberate intention of making invitations to other persons. The guidelines also suggest that the making of invitations to a significantly greater number of persons than 300 would cast doubt upon compliance with the spirit of “private basis”, which is embodied in the Act on the grounds that a large number of persons is not consistent with what is commonly understood to be “private”.
There are three main fund structures:
Business Companies. Business companies are usually incorporated with limited liability, with open-ended investment companies issuing redeemable shares. The limited liability company is widely used for hedge funds.
International Limited Partnerships. The international limited partnership concept is typically used in closed-ended structures and for master funds in master/feeder structures.
Unit trusts. The unit trust is also used in the British Virgin Islands and essentially follows English trust law whereby unit trusts are established under a trust deed giving unit holders undivided beneficial interests in the trust property. Unit trusts are often used, in place of companies, for investors in jurisdictions where participation in a unit trust is more acceptable or attractive.
BVI Recognised Mutual Fund (Private or Professional Fund)
(Fees reflect the BVI Financial Services Commission “FSC” 2010 fee increase)
• FSC mutual fund application fee
• FSC mutual fund recognition fee ($500 after July in any year)
• BVI company licence fee
• authorised BVI mutual fund agent fee (upon appointment and annually thereafter)
• registered agent/office (upon incorporation and annually thereafter)
• communication/courier/company seal costs
• name check
• preparation of the company memorandum of association
• preparation of the company articles of association
• preparation of company registration forms
• filing with the BVI registrar of companies
• certificate of incorporation
• share certificates
• minutes of the first board meetings
• register of directors
• register of members
• company seal
• re-draft, filing and certifying memorandum & articles of association for the fund formation
• preparation of offering documents and fund agreements
• preparation of investment fund application for recognition and licensing with BVI FSC
• filing the fund application with the BVI FSC
• certifying documents for the FSC
• payment of first year BVI Registered Agent/Office (annual)
• payment of first year Authorised BVI Mutual Fund Agent Fee (annual)
• payment of first year BVI Business Company Licence Fee (annual)
• payment of first year FSC Mutual Fund Recognition Fee (annual)
• courier service (1 time)
Annual fees include:
• registered agent/office for a mutual fund
• BVI business company licence fee
• FSC mutual fund recognition fee