At OCI we set up a lot of Private Investment Funds (Cryptocurrency based funds seem to be flavour of the month presently!).
For many a Closed End Fund presents an opportunity for a successful Trader to dip his/her toe in the water and to trade funds for multiple persons eg friends/family members.
A Closed End Fund is a Private Investment Company that resolves to collect a certain/specific amount of Investor capital (eg $US1 million) then trade/invest that capital for a fixed period of time (eg 12 months). During the Closed End Period (eg 12 months) the Fund Company can’t onboard new investors nor pay out existing investors.
In many jurisdictions this model of Fund Company does not require any form of Special Licensing (ie no “Fund License” or “Fund Manager’s License” is required).
For some – eg new Fund Promotors – the process for how to sign up a new investor (or to pay out an existing investor) can be a bit hard to come to grips with!
Simply explained, the process to onboard/exit an investor in the case of a non-licensed Closed End Fund typically is as follows:
- The Company targets to raise a set/fixed amount of share capital (eg $1 million USD)
- Each investor signs an Offering Document in the form of an Information Memorandum (“IM”) and provides KYC per the requirements
- Once the Fund is fully subscribed (ie once you have investors committed in total to invest the targeted amount of share capital say $1 million USD) you email all the investors and tell them to pay up within X number of days
- Once all the investors have paid the Company then issues shares to each investor (this entails calling a board meeting, Drafting/Passing a board resolution, signing a board resolution then share certificates have to be produced and be signed by the Company Director and the names of the shareholders have to be entered into a share register kept at the Fund Company’s registered office. This process can take a week+ )
- Once you’ve received all committed shareholder funds and share certificates have been issued the Company can start trading
- At the end of the fixed investment period you calculate NAV ie Nett Asset Value (https://www.investopedia.com/terms/n/nav.asp )
- You (ie the Company) then buy back the shares from each investor ie pay back to each investor his/her capital + his/her return (ie the investor’s proportionate share of the Company’s nett profit for the fixed investment period based on the NAV) and start the process all over again
If you want more flexibility than this eg if you want to onboard/payout investors often or intermittently you’ll need to set up an Open Ended Fund.
The easiest/lowest cost options in this regard would be a BVI Incubator Fund ( https://offshoreincorporate.com/how-to-set-up-a-bvi-incubator-fund/ ) or a Panama PF 20 Fund ( https://offshoreincorporate.com/panama-private-funds/ ).
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 legal and reporting/tax requirements before committing to set up or use an Offshore Company (or other entity) for the above described, or any other, purpose/s.
