For some years now the British Virgin Islands has the been the jurisdiction of choice for Start Up Fund Managers and Established Fund Managers alike.
If you’re looking to launch a Fund then you’ll be pleased to know that the BVI offers multiple alternatives including:
- The BVI Incubator Fund
- The BVI Approved Fund
- The BVI Private Fund
- The BVI Professional Fund &
- The BVI Public Fund
For a detailed summation of all the above options check this Link: https://offshoreincorporate.com/bvi-investment-funds/
For most Start Up Funds the choice will come down to setting up either a BVI Incubator Fund or a BVI Approved Fund. The purpose of this article is to take a detailed look at the features of, and the differences as between, the two options.
The BVI Incubator Fund
The BVI Incubator fund (the “Incubator Fund”) is geared towards start up investment managers who wish to offer investments into a regulated investment fund at a reasonable cost 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 a BVI based authorised representative (which is a service that OCI can/will provide). 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 BVI 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.
If you want to keep Fund Admin in-house you could potentially apply for an Approved Manager’s License. This license/qualification offers investment fund managers and advisors a simple and cost-efficient approval process in obtaining a licence for the provision of management or advisory services to BVI and certain foreign funds (including for example Jersey and Cayman Islands funds) or entities bearing similar characteristics to a fund.
Incubator Fund Requirements
A BVI 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
The main advantage of the BVI is that is attractive to investors – it has a proven name/track record in the International Financial Services world in that its perceived to be a safe and well-regulated jurisdiction. Setting up in the BVI should also assist you to get access to the widest range of Banks/Brokers/Crypto Exchanges etc. (Along with the more expensive/more heavily regulated Cayman Islands), over the course of the past 20 years, the BVI has grown to become THE GO TO jurisdiction for Fund Managers/promoters.
The BVI Government advertising claims that you can get a BVI Incubator fund approved within 6 weeks. That is grossly misleading. The process of creating an Incubator or Approved Fund and getting it licensed is like building a house. When building a house you need to engage a qualified Builder to find/hire/manage the various tradesmen and to help you navigate your way through the approvals/registration/licensing process. It’s the same with setting up a first time Fund. Like building a house, the entire process to get a BVI Incubator Fund or Approved Fund to the licensed/operational stage can take 6 months. To make the process happen as quickly as possible (and to ensure you get the right advice/guidance and don’t run aground on unseen reefs!) you need to hire a Corporate Services Provider that knows (or can find) and can bring together all the various players for you (including Lawyers, Specialist Company Incorporators, local Authorized Representatives, BVI Registered Agents/Registered Office providers, Fund administrators, nominees, banks etc). OCI can perform that role for you. We have set up multiple versions of both Incubator Funds and Approved Funds in the past 12 months and are well versed with the current regulatory landscape in the BVI.
Would you like to know more? Then please Contact Us:
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.
