July | 2021 | Offshore Companies International

BVI Investment Funds

The British Virgin Islands (“BVI”) is one of the most popular and established jurisdictions for the formation and operation of offshore investment funds and managers. BVI investment fund structures are globally known for their flexibility allowing investment managers and investment fund sponsors to tailor their offering to the needs of their investors. Some of the key advantages of BVI investment funds include the following: A modern, recognized and robust legal system derived from English common law, including a very flexible corporate statute (the BVI Business Companies Act 2004). Key features include:

A dedicated and experienced commercial court
Competitive professional and government fees
Fast turn-around times
No regulatory restrictions on investment policies, strategies or objectives, and
No requirement to appoint local directors, local functionaries, or local auditors.

Regulatory Background

By way of background, only open-ended investment funds are regulated in the BVI, closed-ended funds are not. Open-ended funds are investment funds which provide their investors with the option to redeem their shares or interests in the investment fund, at their request. In contrast, the redemption of interests in a closed-ended fund requires the approval by the closed-ended fund. There are no specific regulations for closed-ended investment funds under BVI law. Due to the illiquid nature of its investments, most private equity funds are structured as unregulated closed-ended funds.

In the BVI there are five types of regulated open-ended investment funds:

The Incubator Fund
The Approved Fund
The Private Fund
The Professional Fund; &
The Public Fund

BVI Private Funds

The Private Fund (the “Private Fund”) is geared towards start-up managers and family and friends’ funds. It has no minimum investment threshold. However, the Private Fund must be limited to either having no more than 50 investors or to inviting potential investors to subscribe for, or purchase, Interests on a private basis only. The Private Fund is an attractive alternative to the Approved Fund.

A Private Fund must:

Have two directors, one of which must be an individual,
Have an investment manager, funds administrator, custodian (or prime broker) and an auditor appointed (subject to certain exemptions),
Have an authorised representative

The Incubator Fund

The incubator fund (the “Incubator Fund”) is geared towards start up investment managers who wish to offer investments into a regulated investment fund at reasonable costs to build up their track record. The key characteristics of an Incubator Fund are:

The total number of investors is restricted to 20,
An investor must initially invest at least USD20,000,
The net assets of the Incubator Fund must not exceed USD20,000,000 (or its equivalent in any other currency),
No requirement to have an offering document in place,
No requirement to have third party service providers appointed,
No requirement to file audited financial statements, and
The life span is limited to 2 years (or 3 if an extension is granted) after which an Incubator Fund may be converted into a Professional Fund, a Private Fund or an Approved Fund. Alternatively, an Incubator Fund can also be converted into an unregulated closed-ended fund.

An Incubator Fund must:

Have two directors, one of which must be an individual
Have an authorised representative. The authorised representative will serve as a conduit between the fund and the BVI Financial Services Commission (the “FSC”),
Submit financial statements annually (which need not be audited),
Submit returns to the FSC regarding its status, i.e. the number of investors, total investments, aggregate subscriptions and redemptions, net asset value of the fund and details of any significant investor complaints; and
Notify the FSC within 14 days of any changes to the information provided in the application or in relation to any matter which is likely to have a material impact on the fund.

The Approved Fund

The approved fund (the “Approved Fund”) is geared towards ‘family and friends’ funds managers. Its key characteristics are:

The total number of investors is restricted to 20
Net assets of the Approved Fund must not exceed USD100,000,000 (or its equivalent in any other currency)
No minimum investment
No requirement to have an offering document in place
No requirement to have third party service providers appointed, except for appointment of a fund administrator which will, in short, provide the Approved Fund with registrar and transfer agent and net asset value calculation services, and
No requirement to file audited financial statements

Although not required by law, in practice the Approved Fund will often have a third-party investment manager appointed.

An Approved Fund must:

Have two directors, one of which must be an individual
Have an authorised representative
Submit financial statements annually (which need not be audited),
Submit returns to the FSC regarding its status, i.e. the number of investors, total investments, aggregate subscriptions and redemptions, net asset value of the fund and details of any significant investor complaints; and
Notify the FSC within 14 days of any changes to the information provided in the application or in relation to any matter which is likely to have a material impact on the fund.

The Professional Fund

The professional Fund (the “Professional Fund”) is geared towards sophisticated investors. It is the most popular type of regulated investment fund in the BVI, with a market share of around 70% of all regulated BVI funds.

An investor in a Professional Fund must be either a professional investor or an exempted investor:

A professional investor is a person whose ordinary business involves the acquisition or disposal of property of the same kind as the property held by the fund or who, whether individually or jointly with a spouse, has a net worth in excess of USD1,000,000. A professional investor must make an initial investment of at least USD100,000
An exempted investor is not subject to minimum investment requirements. An exempted investor includes the fund manager, administrator, promoter or underwriter of the fund or any employee of the manager of the fund.

A Professional Fund must:

Have two directors, one of which must be an individual
Have an investment manager, funds administrator, custodian (or prime broker) and an auditor appointed (subject to certain exemptions)
Have an authorised representative
Submit audited financial statements annually; &
Notify the FSC of certain changes as specified in the relevant legislation.

The Private Fund

A Private Fund must:

Have two directors, one of which must be an individual,
Have an investment manager, funds administrator, custodian (or prime broker) and an auditor appointed (subject to certain exemptions)
Have an authorised representative
Submit audited financial statements annually, and
Notify the FSC of certain changes as specified in the relevant legislation.

The Public Fund

The Public Fund (the “Public Fund”) is geared towards investment managers seeking to offer a retail investment fund. The regulatory regime applicable to a Public Fund is considerably more complex than for any other regulated BVI fund. However, there are no restrictions on the type of investors, number of investors, marketing to investors or the maximum value of assets held by the Public Fund.

Fund Vehicles

BVI investments funds can be formed as companies, segregated portfolio companies (for a private, professional or public fund only), limited partnerships or unit trusts. Most of the BVI investment funds are established as companies limited by shares. Limited Partnerships are more often used in the context of unregulated closed-ended funds

BVI Incubator Funds – Overview

Are you looking to set up a Fund? Is this your first time setting up a Fund???

If so, you may be interested to know that the most popular model of “Start Up” Fund in the BVI is the Incubator Fund.

In 2015 the progressive jurisdiction that is the BVI (British Virgin Islands) recognized there was a gap in the Fund Setup Market for a lightly regulated model of Fund.

Hence regulations were passed allowing for the set-up in the BVI of 2 new models of Mutual Fund ie Incubator Funds and Approved Funds.

Prior to 2015 the only option for a successful trader/prospective fund manager wanting to dip his or her toe into the Fund Management Market was to set up a (non- licensed) Closed End Fund ie a Fund wherein the Investor was/is required to lock in his funds for a fixed investment period.

This limitation often caused a promoter difficulty in fund raising as most investors would prefer a mechanism that would entitle them to withdraw their funds on demand if desired or needed.

The (relatively) new BVI Regulations enable Incubator and Approved Funds to be set up and launched on a fast track, low cost basis with limited regulatory oversight by the BVI Financial Services Commission (“the Commission”).

Fund Requirements

An Incubator Fund has a minimum investment requirement of US$20,000, a cap on net assets of US$20M and can take in no more than of 20 investors. An Incubator Fund does not need to appoint an Administrator or a Custodian or an Investment Manager or an Auditor.

An Approved Fund has a net asset cap of US$100 Million and no minimum investment requirement but is limited to no more than 20 investors. An approved fund is required to appoint an Administrator but does not need to appoint a Custodian or an Investment Manager or an Auditor.

Application Process

An applications for approval as an Incubator Fund or an Approved Fund must be lodged with the Commission and be accompanied by:

The constitutional documents;
Details of the investment strategy;
A prescribed form of investor warning; and
An application fee (US$1,500).

An Incubator Fund or Approved Fund can commence business 2 days from the date of receipt of a completed application by the Commission.

Duration & Conversion of Incubator Fund

An Incubator Fund has a limited life span of two years which can be extended for up to 12 months. An Approved Fund has no such limits. An Incubator Fund can convert to an Approved Fund, a Private Fund or a Professional fund, or may be wound up at the end of its term. An Incubator Fund can convert to a Private Fund or a Professional Fund or to an Approved Fund by lodging the required/prescribed application with the Commission.

Ongoing Obligations

Part of what keeps the set up and admin costs low is that service provider requirements are minimal:- Each fund is only required to appoint an Authorized Representative in the BVI and an Approved Fund is required to have an Administrator at all times. Pleasingly, there are no mandatory custody requirements and there is no requirement for the issuance of an Offering Document. If/where the fund decides to not issue an Offering Document, the required investor warnings can be set forth in a separate term sheet.

The key regulatory requirements for an Incubator Fund and Approved Fund are:

An annual fee of US$1,000 is payable to the Commission on or before 31 March of each year
Must have a minimum of two directors at all times, one of whom must be an individual
The Fund Entity must notify the Commission of any change to any of the information submitted to the Commission in the set-up application; (eg you’d need to advise of any conduct which has, or is likely to have, a material impact or significant regulatory impact, changes to directors, etc changes to ownership/promoter structure etc).
Prepare and file annual financial statements with the Commission (note there is no requirement for an independent audit)
Twice a year you must file a return with the Commission

OCI Service etc Fees

We confirm assist you to register an Incubator Fund in the BVI. Our fees would be as follows:

Incorporation of the fund will be $2,150 Annual renewal will be $1,750
Professional fee for application with FSC for Fund licence $1500 (note if the application becomes complicated additional charges will apply)
FSC application fee $1500 or $750 after June, (annual renewal will be $1,500)
Authorized Representative fee effective from application $1,600 per annum
For Administration we can certainly do this at competitive rates. The specific fees will depend upon various factors such as frequency of NAV, investment strategy, number of investors etc… By way of example, if the Fund only requires an annual NAV and holds a single or minimal number of easy to value positions and has only a handful of investors, we could do the Admin for as little as US$12k-$14k per annum/NAV. However if the Fund wants monthly NAVs and has multiple, frequently traded positions the fees would start in the region of US$29,000.

(The above assumes that the authorized share capital figure, as stated in the Company’s articles of Association will be no greater than $50,000. If you require a higher amount of authorized share capital additional fees are payable to the BVI registry both at incorporation and yearly thereafter, on a sliding scale).

Documents etc Required

The following documents are required for the application:

Instruction Sheet
FSC application form
Notarized passport and proof of address for each director, shareholder and beneficial owner
Bank Reference for each director, shareholder and beneficial owner,
Professional reference for each director, shareholder and beneficial owner
Police Certificate for each director, shareholder and beneficial owner
Resume for each director
Form A application for the Directors (2 minimum)
Offer document ie if you have prepared your own, (We can also assist with drafting of same. We can draft a standard offering document for $US1,500).

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

DISCLAIMER: OCI is a Company/Trust/LLC/LP/Foundation Formation Agency. We are not tax advisers or legal advisers. You are advised to seek local legal/tax/financial advice in regards to your local reporting/tax requirements before committing to set up or use an Offshore Company or other entity.

Belize LLC Versus Belize IBC

We are regularly asked by clients looking to incorporate in Belize should I set up a Belize LLC or a Belize IBC?

So let’s look at the features of each beginning with the Belize LLC…

An LLC (Limited Liability Corporation) is, effectively, a hybrid of a Limited Company and a Partnership.

It’s like a Company in that that liability of the Company is limited to the capital invested and assets purchased by the Company.

Like a partnership it’s a flow through entity: An LLC does not have to file a tax return; the nett profits are passed through to the members of the LLC (members are to an LLC what shareholders are to a Limited Company) who are responsible for taxes (if applicable) in their country of tax residence (ie same tax treatment as partners in the case of a Partnership).

From a member/partner’s viewpoint an LLC is superior from a liability perspective to a Limited Partnership (“LP”) because in the case of a Limited Partnership (which is constituted by a Limited Partner and a General Partner) one partner can be made liable for the debts of the partnership. In the case of an LLC the liability of the members is limited to the extent of the member’s capital contribution (unless a personal guarantee has been given by a member to a supplier of the LLC).

LLC members can fully participate in the management of the LLC (which is different to an LP – in the case of an LP the Limited Partner usually can’t participate in the management of the enterprise without risking his/her Limited Liability status).

Key Benefits include:

· Privacy: There is no public register of owners/members or Directors/Managers in Belize

· Tax Effectiveness: Belize LLCs are not liable for corporate tax or business tax or any other form of tax in Belize

· Simplicity: There is no requirement in Belize to prepare annual accounts or appoint an auditor

· Flexibility: Belize LLCs can be used to own/operate a wide range of businesses as of right

· Asset Protection: Before you can sue a Belize LLC you have to pay into Court (in Belize) a deposit being an amount equal to the greater of (i) one half of the amount claimed or $US50,000 whichever is the greater

Other features of the Belize LLC Law include:

A Belize LLC can be structured according to its own rules rather than being dictated to by statute
A Belize LLC is a legal entity with separate rights and liabilities distinct from its members & managers. (This means nobody other than the LLC itself can be made liable for the debts of the LLC)
Somebody suing a Belize LLC member at best can only have the members rights assigned to him; he can’t participate in the management of the LLC
Belize doesn’t recognize foreign judgments. Only a judgment made by a Belize Court can be given against a Belize LLC
LLCs from other jurisdictions can migrate to Belize and vice versa (ie a Belize LLC can redomicile and become eg a Nevis LLC)
Civil legal proceedings against a Belize LLC must be held in private (and there are penalties for unauthorised disclosure).

Set Up cost: $UD1,200 From 2^nd year $890

Belize Companies & Compliance

Belize LLCs are not subject to any reporting requirements, have no Belize tax obligations and ownership/management information is not publicly accessible.

However, it must comply with the usual KYC/DD requirements (same as IBCs).

Also, there is no limitation on LLCs owning IP Assets.

The setup requirement for an LLC is similar to that of an IBC (similar information required on application form). There is an important distinction, however, in that, because of economic substance, the activity of the IBC needs to be specific so as to determine if it is carrying on a relevant activity or not.

All IBCs need to obtain a TIN (Tax Identity Number) from the Belize Registry. Having a TIN does not mean that the IBC is liable for tax in Belize. The purpose for this initiative is strictly for regulatory and tax authorities to efficiently monitor the status of the IBC.

Regarding the current tax position of the Belize IBC, there is a presumption of residency for all entities registered in Belize. This means that moving forward Belize IBCs will be required to file a tax return by the first tax filing date unless the company claims to be tax resident in an outside jurisdiction. For non-grandfathered Companies, the first tax filing date is 31st March 2021, and for grandfathered Companies, this is 31st March, 2022.

The foregoing requirement will not apply to an IBC that:

Is tax resident in another country (other than a country on the European Union list of non-cooperative jurisdictions for tax purposes);
Has no permanent establishment in Belize
Files an information return at the same filing dates mentioned above, wherein said form will include the jurisdiction of which the company is a tax resident, the beneficial owners of the company owning or controlling 5% or more, as well as all direct and indirect legal owners, including information on the tax residency of such legal or beneficial owners.

Tax resident IBCs are subject to Business Tax, which is a tax on gross revenue and ranges from 1.75% (for trade) to 6% (on professional services).

Set Up cost: $UD1,000 From 2^nd year $690

Local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to set up a Company such as that described above.

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Issue More Shares for an Existing Company

Typically, when a Company Limited by Shares is incorporated, in the Company’s set up docs (eg in the Memorandum/Articles of Association or Constitution) it will say the authorized Share Capital of this Company is X$.

(For those of you who don’t know authorized share capital is) Authorised Share Capital is the amount of capital/money a company can raise by issuing shares. If the maximum authorized share capital of a company is $100,000 then the company can only issue or allocate (eg by private sale) $100,000 worth of shares (eg 100,000 shares of one US Dollar each or 10,000 shares of Ten US dollars each or say 1,000,000 shares of 10 cents each, etc).

If the maximum authorized share capital is $US1,000,000 (1 Mill USD) then a company can issue and sell $1,000,000 worth of shares (eg 1,000,000 shares of one US Dollar each or 100,000 shares of ten US Dollars each etc or ten million shares of 10 cents each).

In theory any shares issued should be fully paid for by the shareholder; Which is why typically when we form a Company, where the client (or a Nominee) is to be the initial shareholder, we only issue one hundred shares to the initial shareholder (ie so as to limit the amount of money you have to commit to, or the amount of money that you will end up owing to, the Company).

If you want to issue more shares you would firstly need to:

Tell us how many shares and the kind of shares you want issued (and the value of each share) eg Dear OCI Please issue one hundred thousand ordinary shares of $US1 each
Tell us who these shares are to be issued to

You will also need to provide us with:

A. (if the new shareholder is to be a person) certified copies of the said person’s passport, drivers license, and proof of address document; or

B. if the shareholder is to be a company (all the above info as regards the underlying company owners and natural person shareholders plus) proof of incorporation, registered office address and good standing of the company (and you’d need to tell us, if these shares are to be sold to an outside party, what the agreed sale price is of/for these shares).

Here is what the legal process will look like:

(a) We would need to create and arrange for the Company Director/Chairman to sign a Change of Shareholdings minute/resolution – (we will forward you the draft when you confirm that you wish to proceed).

(b) An application for shares (also known as a Share subscription application) will need to be created by us for signing by the incoming shareholder – (we will forward you the draft share transfer when you confirm that you wish to proceed).

(c) We will also need fees settled in advance. See details below.

Procedures Once Documents Have Been Received

Once our fees have been settled and we have received (a) the original application for shares and (b) an original (or certified copy) of the signed resolution within 3-5 working days we will:

(i) scan and email to you the new share certificate/s; and

(ii) upgrade the Company’s Share register to note the new shareholder’s name; and

(iii) scan and email to you a Lawyer certified true copy of the upgraded Share register; &

(iv) (the same day) package and take the above docs to DHL/Fedex/TNT (or to the post office for airmailing as you may prefer) for despatch by courier to you with the next available flight to your region.

Cost of attending to all the above would be circa $300 per shareholder (depending on the jurisdiction) and payment is required in advance. (Payment can be made by bank transfer or credit card or via Paypal or in Bitcoin).

Please confirm that you wish to proceed (advising of the shareholder details as per paragraphs 1 and 2 above) + advise how you wish to pay and we will send you an invoice for payment.

NOTE: if the amount of shares you propose to issue means that the total amount/value of shares issued will be then greater than the Company’s “Authorised” Share Capital ie as stated in the Company’s Articles of Association (or Constitution as the case may be) then, before attending to any of the above, we will also need to amend the Articles of Association (or Constitution as the case may be). To amend a Company’s Articles of Association we would need to call a board meeting, create a whole new draft of the Articles of Association then arrange for that draft to be signed and filed with the registry. Cost to attend to all of this would be circa $350 + registry fees.

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com