Launch of The Limited Partnership Fund Regime in Hong Kong
Authored by Elaine Chow, Director and Paco Yik, Senior Associate.
The Limited Partnership Fund Law came into operation on 31 August, 2020. This new regulation establishes a new limited partnership fund regime (“LPF”) that enables private funds to be registered in the form of limited partnerships in Hong Kong.
Prior to the introduction of the LPF regime, most managers in the region seeking to set up close-ended private funds would traditionally have chosen the Cayman Islands exempted limited partnership (“ELP”) which was widely adopted by private fund managers and investors alike. The LPF regime now provides private fund managers with the added option of bringing their fund vehicles and operations onshore. We have set out below some key comparisons between the Hong Kong LPF and the Cayman ELP.
|Hong Kong||Cayman Islands|
|Eligibility||Constituted by one general partner (GP) and at least one limited partner.||Constituted by at least one general partner (GP) and at least one limited partner.|
|Legal Personality||An LPF does not have separate legal personality.||An ELP does not have separate legal personality.|
|Management and Liabilities||The GP has the ultimate responsibility for the management and control of the LPF and bears unlimited liabilities for all debts and obligations of the LPF. The LP’s liability is generally limited up to its capital commitment, unless the limited partner has participated in the management of the LPF.||The GP is responsible for the management of the ELP and bears unlimited liabilities for all debts and obligations of the ELP. The LP is generally not liable for the debts or obligations of the ELP unless as may be provided by the LPA.|
|Investment Manager||Must appoint an Investment Manager (who can be the general partner, a Hong Kong resident individual over 18 years old or a corporation registered in Hong Kong).||No requirements.|
|Auditor||Must appoint an independent auditor.||Must appoint a CIMA approved auditor if registered with CIMA.|
|AML||Must appoint a responsible person to carry out the preventive anti-money laundering/counter-terrorist financing (AML/CTF) measures. The responsible person must be either an authorized institution; a licensed corporation; an accounting professional; or a legal professional.||Must designate experienced and skilled risk and compliance natural persons as an AML Compliance Officer (AMLCO), Money Laundering Reporting Officer (MLRO) and Deputy Money Laundering Reporting Officer (DMLRO).|
|Custody of Assets||Must ensure proper custody arrangements for the assets of the fund.||Must ensure proper custody arrangement and either a custodian or a person for assets’ title verification should be appointed.|
|Register of Limited Partnership Interests||The identity of the limited partnership of the LPF is kept confidential, is not recorded on the LPF register nor reported to the Inland Revenue Department. However, the LPF will need to ensure that details of the LPs are maintained and that the relevant records should still be kept at the registered office or any other place in Hong Kong and made available to law enforcement agencies where necessary.||A record of the limited partnership of the ELP shall be maintained and the register shall be updated within twenty-one days of the date of any change in the particulars therein.|
|Profit Tax||Profit tax exemptions may apply under the Unified Funds Exemption regime where the LPF meets certain conditions.||Neither an ELP nor any partner is subject to any form of direct taxation in the Cayman Islands.|
HOW CAN DMS HELP?
DMS can provide the following LPF services:
Professional Independent Director Service – DMS has broad, deep, and diverse local talent options that provide the most effective governance solution, representing funds and protecting the interests of the investors and other stakeholders.
Board Support Service – DMS manages all administration, including coordinating the reporting and attendance of all services providers, preparing comprehensive board packs and meeting minutes.
Tax Compliance Service (CRS & FATCA) – DMS provides customized solutions to all investment funds, family offices and financial institutions that help Reporting Financial Institutions (RFI) to effectively meet their CRS & FATCA obligations in all respective jurisdictions.
For over 20 years, DMS has delivered high-quality, professional services to a diverse range of leading global institutions and emerging managers. DMS provides investment funds with high-quality fund governance and extensive compliance services. With its in-depth knowledge and extensive experience in private funds, DMS is delighted to be able to advise and assist you with any queries you may have relating to both Cayman ELP and Hong Kong LPF.
For more information, please reach out to your usual DMS representative or contact us below.
This document is for general information purpose only and does not constitute legal advice.