Hong Kong Limited Partnership Fund Bill

At the meeting of the Executive Council on 17 March 2020, the Council ADVISED and the Chief Executive ORDERED that the Limited Partnership Fund Bill (“the Bill”), should be introduced into the Legislative Council (“LegCo”)to establish a registration regime for limited partnership funds (“LPF”) to set up and operate in Hong Kong. The key features of the Bill are described below. 1. Constitution of an LPF An LPF will be a fund that is structured in a limited partnership form and will be used for the purpose of managing investments for the benefit of its investors. The proposed LPF structure is not in itself a legal person. The LPF regime will be a registration scheme. A fund qualifying for registration under the LPF regime must be constituted by at least two partners (one general and one limited) under a written agreement. The general partner of an LPF has unlimited liability in respect of the debts and obligations of the fund and ultimate responsibility for the management and control of the fund. A fund qualifying for registration under the LPF regime: (a)must have one general partner and at least one limited partner, whereby: the general partner must be a private company limited by shares incorporated in Hong Kong, a non-Hong Kong company registered with the Companies Registry (“CR”) of Hong Kong, a limited partnership (whether domestic or foreign), a limited partnership fund or an individual; a limited partner must be an individual, a corporation, a partnership, an unincorporated body or any other entity or body; (b)must be constituted by a written agreement (i.e. limited partnership agreement (“LPA”)); (c)must have a registered office in Hong Kong; (d)must have an investment manager appointed by the general partner to carry out the day-to-day investment management functions. The investment manager must be a Hong Kong resident above 18 years old, a Hong Kong company, or a non-Hong Kong company registered with the CR. The general partner, if meeting the above criteria, can appoint itself as the investment manager of the LPF; (e)must have an independent auditor appointed by the general partner to carry out audits of the financial statements of the LPF annually. The auditor must be a practice unit as defined in section 2(1) of the Professional Accountants Ordinance (Cap. 50); (f)must appoint a person (“responsible person”) to carry out anti-money laundering/counter-terrorist financing (“AML/CTF”) functions. The responsible person must be an authorized institution, a licensed corporation, an accounting professional or a legal professional; and (g)if the general partner has no legal personality because it is another LPF or a non-Hong Kong limited partnership without legal personality, the LPF must have an authorized representative with a legal personality to be responsible for the management and control of the LPF and to be jointly and severally liable with the general partner for all the debts and obligations of the LPF. 2. Registration requirements Under the proposed LPF regime, a fund wishing to register must submit an application to the Registrar of Companies. An application must be submitted by a registered Hong Kong law firm or a solicitor admitted to practise Hong Kong law in Hong Kong on behalf of the fund. The application must contain the following documents/information and a fee at a specified amount: (a)the proposed name of the LPF; (b)the name, address, identification number and signature of the proposed general partner; (c)the proposed address of the registered office of the LPF in Hong Kong; (d)the proposed investment scope and proposed principal place of business of the LPF; (e)the name and identification number of the proposed investment manager; (f)the name and identification number of the proposed responsible person; (g)a declaration and undertaking from the proposed general partner that the fund is intended to be set up as a limited partnership fund and meets the eligibility requirements, together with an acknowledgement that it is an offence to make a false, misleading or deceptive statement; and (h)the name and contact information of the law firm/solicitor submitting the application. 3. Other statutory obligations The general partner must file an annual return to the RoC on behalf of the fund. The return must include a declaration that the LPF has been in operation, or has carried on business as a fund, during the year and will be in operation, or will carry on business as a fund, in the following year, together with a specified fee. A general partner/investment manager will be required to maintain proper record of the following documents/information in relation to the LPF’s operation and transactions at the registered office of the LPF or any other place in Hong Kong made known to the RoC: (a)the financial statements of the LPF audited by an auditor; (b)a register of partners containing the particulars of the general partner and each limited partner (including their identities; contact information, total amount of capital contribution, etc.); (c)records and documents obtained in the course of customer due diligence and files relating to every customer’s account and business correspondence with the customer and any beneficial owner of the customer in accordance with section 20(1)(b) of Schedule 2 to the AMLO; (d)documents and records of each transaction carried out by the LPF; and (e)information of the controller of each of the partners in the LPF (for Exchange of Information purposes, as per the requirements of the OECD). 4. Contractual freedom among partners The partners in an LPF will have freedom of contract in respect of the operation of the LPF subject to the provisions of the Bill. These cover admission and withdrawal of partners, organisation and governance of the LPF, investment scope and strategy of the LPF, the rights and obligations of partners, financial arrangements among the partners, custodial arrangement, etc. 5. Safe harbour activities for limited partner(s) A limited partner may conduct certain safe harbour activities, which will not be regarded as management of the LPF and hence will not compromise its limited liability protection in respect of that LPF. Some examples of safe harbour activities include serving on a board/committee of the LPF, advising or approving the general partner/investment manager on the business, accounts, valuation or assets of the LPF, taking part in a decision about the admission/withdrawal of any partner, the term of the LPF, the appointment of investment manager, changing the investment scope of the LPF and so forth. 6. Dissolution and liquidation mechanisms Partners of an LPF would have the right to agree among themselves in the LPA the conditions and procedures under which the fund could be dissolved voluntarily. After the fund is dissolved, the general partner must file a notification to the RoC within a specified time. Under certain conditions, an LPF may be dissolved by the Court for investor protection purpose and on just and equitable ground. In addition, an LPF may be wound up by the Court if a winding up petition is presented to the Court against the LPF under certain conditions. In this case, an LPF may be wound up by the Court as an unregistered company. 7. Tax and stamp duty treatment Like other funds operating in Hong Kong, an LPF meeting certain conditions can enjoy profits tax exemption on transactions in qualifying assets and transactions incidental to the carrying out of qualifying transactions. As to stamp duty, which apply the same arrangements of a limited partnership to an LPF.