Offering Legal, Tax & Business Services to Investment Managers & Hedge Funds Worldwide BVI Private Funds
BVI Fund Types In the BVI regulated funds are categorized as either Incubator Funds, Approved Funds, Private Funds, Professional Funds, or Public Funds. Another option also exists in the BVI as not all companies operating as pooled investment vehicles are subject to the Securities and Investment Business (Amendment) Act 2015 (amending the Securities and Investment Business Act 2010 (SIBA). SIBA regulates only open-ended funds (i.e., those whose equity interests are redeemable at the option of the investor). Consequently, closed-ended "funds" (i.e., whose equity interests are not redeemable at the option of the investor) are not subject to specific regulation in the BVI. The redemption feature represents the key distinction between closed-ended companies operating as "funds", Incubator Funds, Approved Funds, Private Funds, Professional Fund and Public Funds. Learn More About Using a BVI Closed-Ended Company as a Hedge Fund
BVI Private Funds Private Funds must either have no more than 50 investors or only make invitations to subscribe for or purchase fund interests on a private basis. Unlike BVI Professional Funds there are no minimum investment or investor suitability requirements for BVI Private Funds. By way of contrast, a BVI Professional Fund is a fund in which the shares are made available only to professional investors and the minimum initial investment by each such investor cannot be less than $100,000.
Aside from the fact that Professional Funds are subject to minimum investment and investor suitability requirements, the only other distinction between Private Funds and Professional Funds is that a Professional Fund, under SIBA is permitted to operate for 21 days before receiving its license from the Financial Services Commission (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.
Marketing a BVI Private Fund For a BVI Private Fund, an invitation to subscribe for shares “on a private basis” includes an invitation which is made to specified persons and is not intended 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. BVI guidelines 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 law on the grounds that a large number of persons is not consistent with what is commonly understood to be “private”.
BVI Fund Structure Sponsors and fund managers considering a BVI fund may choose to structure the fund as one of the following: a BVI business company, a limited partnership or a unit trust. The majority of BVI investment funds are established as companies limited by shares under the Business Companies Act (2004). Limited partnerships are also a common form of investment fund, while unit trusts are relatively rare. 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.
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 Private Fund Requirements BVI Private Funds recognized under the Securities and Investment Business Act, 2010 (SIBA) are generally required to appoint an auditor and to file their audited financial statements with the FSC not more than six months after the end of each financial year. SIBA requires that a fund wishing to be recognized or registered must appoint the following functionaries: an investment manager, an administrator, a custodian, and an auditor. However, Private Funds may apply for an exemption from appointing an investment manager, custodian, or auditor. In considering an application for recognition or registration, SIBA requires that the investment manager, administrator and/or custodian of a BVI mutual fund satisfy the FSC’s fit and proper criteria.
BVI Private Fund Advantages The best part about the BVI is that your hedge fund's service providers (i.e., investment managers, advisers, brokers, administrator, auditors etc.) maybe located anywhere in the world. There is no local audit or sign off requirement in the BVI. Creating BVI a hedge fund business can be done quickly and readily. BVI government fees are low. BVI hedge fund law is very practical and flexible. BVI insolvency law is simple and effective. BVI has a strong and reputable compliance culture, professional infrastructure and reputation. BVI has an English-based legal system and an established judiciary that has pro-business reputation similar to that of Delaware in the United States. The British Virgin Islands is well known for its established and experienced financial services sector. The BVI is extremely compliant with international anti-money laundering, anti-terrorist financing and other financial regulatory standards. The BVI has a good number of international tax information exchange agreements and OECD White List status.
Our BVI Private Fund Services Include: • service and legal fees • FSC mutual fund application fee • FSC mutual fund recognition fee • BVI company license fee • authorized 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 Authorized BVI Mutual Fund Agent Fee (annual) • payment of first year BVI Business Company License Fee (annual) • payment of first year FSC Mutual Fund Recognition Fee (annual) • courier service (1 time)
Annual Fees Include: • Authorized BVI mutual fund agent fee • registered agent/office for a mutual fund • BVI business company license fee • FSC mutual fund recognition fee
The BVI Approved Manager License Since 2012, the BVI has offered a fund manager regime that supports the smaller and emerging fund manager. It has been a great success. In fact, many Cayman funds are set up with a BVI Approved Manager. In fact, the BVI Approved Manager out-performs the Cayman equivalent (i.e., the Cayman Islands Securities and Investment Business Law (SIBL) Exempted Manager), both with respect to cost (initial and ongoing) and because it has the stamp of being a regulated product, which the Cayman equivalent does not. Moreover, the BVI Approved Manager offers greater flexibility, as a Cayman Exempted Manager is limited to only acting for funds whose investors fall within the definitions of a “sophisticated investor” or “high net worth person” under SIBL. The BVI Approved Manager has no such limitation.
Developed as an alternative to the existing regime in which fund managers wishing to do business in the BVI must hold a full license under Part 1 of the Securities and Investment Business Act (SIBA), the Approved Manager law allows eligible fund managers and advisors to submit a simple application to the Financial Services Commission (FSC) and start business seven (7) days later (whereas a Part 1 license will typically take the FSC at least four (4) weeks to process).
The BVI he Approved Manager is regulated by the Financial Services Commission (FSC), its ongoing obligations are limited, which is one of its key attractions. It is required to submit an annual return and financial statements, but there is no requirement for the financial statements to be audited. In addition it must notify the FSC within 14 days if there are any changes to the information contained in its original license application.
An Approved Manager can act as the investment manager or investment advisor to any number of private or professional funds recognized under SIBA as well as any number of closed-ended funds domiciled in the BVI which have the key characteristics of a private or professional fund. The Approved Manager can also act for non-BVI feeder funds into BVI master funds. Although Approved Managers are not restricted to any material extent in the way they carry out business, the regime is crafted to be a ‘licensing regime’ rather than an entirely exempted activity.
An Approved Manager is subject to caps of (i) aggregate assets under management of US$400 million for open ended funds and (ii) aggregate capital commitments of US1 billion for closed ended funds. It can act as investment manager or investment adviser to one or more:
incubator, approved, private or professional fund recognized under the Securities and Investment Business Act, 2010 (SIBA);
closed ended funds domiciled in the BVI with certain characteristics of a private or professional fund;
fund (open or closed ended) domiciled in any Recognized Jurisdiction with certain characteristics of a private or professional fund;
fund (open or closed ended) investing a substantial part of their assets in a fund described in (a), (b) or (c) above; and
other person approved by the FSC on a case by case basis (we have seen this used most commonly for managed accounts).
The Approved Manager license is quick and easy to set up. An application must be submitted to the FSC and the following must be provided:
a copy of the applicant’s constitutional documents;
details of the directors or general partner, any senior officers, the individuals who carry out the day to day investment business functions of the applicant and any person to whom the applicant will delegate any of its investment business functions and a resume or curriculum vitae for each such person;
details of each person who owns or holds and interest in the applicant;
a written declaration by the applicant that each director, general partner, senior officer and person holding a “significant interest” (normally a ten per cent or greater interest) in the applicant is “fit and proper” in accordance with the meaning set out in the Regulatory Code;
a written declaration by the applicant’s authorized representative or legal practitioner that the application for approval as an approved manager is complete; and
the application fee of US$1,000.
The applicant can commence business seven days after submitting its application. An Approved Manager is required to have at least two directors, one of whom must be an individual. The BVI FSC is open to approving applicants where one has fairly limited investment management experienced. This means that the Approved Manager is a viable option for those just starting out in the business.
Why the British Virgin Islands? The British Virgin Islands (BVI) is an attractive and affordable country for hedge funds. The BVI is a zero tax country for both local and International Business Companies and there are no capital gains or capital transfer taxes, no inheritance tax, and no sales tax or VAT. Strong confidentiality provisions are another factor behind the historic growth in business company and trust formations. The British Virgin Islands (BVI) is one of the best countries in the world to set up a hedge fund and a licensed investment management business. Presently, it offers start up fund managers more fund options than any other country. In the BVI regulated funds are categorized as either Incubator Funds, Approved Funds, Private Funds, Professional Funds, or Public Funds. Another option also exists in the BVI--the Closed-Ended Company.
U.S. Law Favors Offshore Hedge Funds Despite the U.S. government's continuing crackdown on illegal offshore accounts, offshore hedge funds remain preferred by upper-income U.S. investors when faced with a choice between an offshore hedge fund and its U.S. onshore version. For hedge funds that use leverage, an offshore fund is preferable because of its tax advantages. For U.S. investors, the tax savings flow from the opportunity to be taxed on net (and not gross) income and the chance to deduct state-tax and other itemized deductions thwarted by the alternative minimum tax. In addition, investing in the offshore fund allows a U.S. investor to avoid some or all of the ever increasing Medicare tax on investment income. Moving assets abroad is especially useful to U.S. investors living in high tax states.
U.S. SEC Offshore AlertThe U.S. SEC's 134-page report published in 2003--The Implications of the Growth of Hedge Funds--presents the status of the hedge fund industry as viewed in the United States. What is interesting about this SEC Report is that articles and web content authored by our very own hedge fund attorney Hannah Terhune, JD, LLM (Taxation) (when she was the Chief and only Attorney at GreenCompany.com) on offshore hedge funds was cited on page 10 of the U.S. SEC Report as providing information the SEC Staff found to be valuable in its understanding of the hedge fund industry. For a decade, hedge fund attorney Hannah Terhune has been counted on by the U.S. government and hedge fund organizers worldwide as a source of cutting edge and practical information on hedge fund formations.
You will see from this web site that we supply more information about hedge funds than most books do on the subject. It's great to see that Hannah Terhune's expertise is appreciated by the SEC! This is quite a coup for Hannah, and provides one more piece of evidence as to how she can help you. You can reach her today at firstname.lastname@example.org or at +1 (307) 413-2212 or on Skype at: CapitalManagementServicesGroup.
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Capital Management Services Group, Inc. is recognized by discriminating persons as being one of the foremost legal authorities in the hedge fund industry. Ms. Terhune's numerous articles on hedge funds and international tax matters have appeared in publications worldwide. Read Our Leading Media Content and Articles by Hannah Terhune on Hedge Funds and International Tax Planning, Chances are, if you have read anything related to starting a hedge fund, Ms. Terhune wrote it. Read Our Client Comments and Read About Hannah Terhune on LinkedIn. When you engage us you get a unique combination of securities, tax, and business experience. Give us the opportunity to use our knowledge and experience for you. No client is too large or too small for us. We pride ourselves in providing personal attention to each Client. We provide high quality services at competitive rates. But don't take our word for it, give us a call and let us prove what we can do for you.