From 31 August 2020, an attractive new fund structure will be available in Hong Kong, providing the opportunity for Hong Kong domiciled private funds to be structured as a limited partnership.
Governed by the Limited Partnership Fund (LPF) Ordinance, which was introduced in March and will take effect at the end of the month, the Hong Kong LPF marks a notable step forward from the previous structuring options available in the jurisdiction. Although a limited partnership structure has been available in Hong Kong for 100+ years, it is not very ‘user friendly’ and thus has never garnered much interest from the market. In providing a much more suitable legal framework for establishing a limited partnership as an investment vehicle, the Hong Kong LPF will be plugging a significant gap in terms of enabling HK-domiciled private funds to attract institutional capital.
In this article, we provide an overview of the new HK LPF structure, who it is for and its key benefits.
Features of the Hong Kong LPF
- The HK LPF must have one GP and at least one LP at the point of registration
- The GP has ultimate responsibility for the management and control of the LPF and will be liable for all the debts and obligations of the LPF
- The GP can be an individual, a HK private limited company, a registered non-HK company, a registered LPF, or a limited partnership registered under Hong Kong’s existing Limited Partnerships Ordinance (Cap. 37) (LPO) or under foreign law
- An LP is not liable beyond the agreed capital contribution, unless the scope of involvement is within the safe harbour activities (e.g. serving any of the LPF’s committee, advising/authorising the GP or investment manager regarding the LPF’s transactions and affairs)
- The GP can itself be, or must appoint, an investment manager to carry out the day-to-day investment management function of the LPF
- The GP must appoint an AML Responsible Person (AMLRP) to perform the AML/CTF functions. The AMLRP can be a Banking Ordinance authorised institution, an SFC licensed corporation, or an accounting or legal professional
- Proper custody arrangements must be ensured and an auditor must be appointed to conduct annual audits
- The HK LPF must maintain a registered office in Hong Kong and its application must be submitted to the Hong Kong Companies Registry by a HK-registered law firm
- External money must be raised within two years from registration.
An example Hong Kong LPF structure
Who will use and benefit from the HK LPF?
The Hong Kong LPF is aimed primarily at private funds. This includes private equity funds, venture capital funds, buy-out funds, real estate funds, infrastructure and project funds, as well as special situation, distressed asset, credit and hybrid funds.
It is targeting private fund managers looking for a cost effective LP-GP structuring solution onshore in Hong Kong. These fund managers may have previously structured limited partnership funds offshore, for example in the Cayman Islands. It’s important to note, however, that a re-domiciliation regime is not currently available.
Key benefits offered by the HK LPF
Notable benefits that come with using the Hong Kong LPF include:
- No restriction on investment scope
- Flexible in capital contribution and profit distribution
- LPFs that satisfy certain conditions can enjoy the Unified Profits Tax Regime – a unified profits tax regime for funds domiciled offshore and in Hong Kong, which came into operation on 1 April 2019
- Tax concession for carried interest announced in 2020/2021 budget, with detail to be announced imminently
- No capital duty (0.08%) applied on contributions from LPs
- No stamp duty for contribution, transfer or withdrawal to/from the LPF
- No capital gains tax
- No public disclosure of LPs’ information
- Broad contractual freedom given to partners in a limited partnership agreement.
Get in touch
If you’d like to find out more about the opportunities presented by the new Hong Kong LPF or would like to discuss your requirements in this regard, please contact any of our key team members:
|
Jimmy Leong |
Kenny Yeung |
Gary Chiu |
