Hong Kong SAR Government tabled the Limited Partnership Fund Bill (the “Bill” or “Ordinance”) which was passed by the Legislative Council on 9 July 2020. The Ordinance establishes a regime for limited partnership funds (“LPF”) in Hong Kong, coming into operation from August 31, 2020. The new LPF regime, along with the existing open-ended fund company regime in Hong Kong, will strengthen Hong Kong’s position as a hub for fund management activities. In the below blog, we explain what this means for our clients and how we can help.
Constitution of a Limited Partnership
The LPF must have at least two partners, one being general and the other being limited and documented by a written agreement. The LPF is required to register with the Company Registry (“CR”) and should maintain a registered office in Hong Kong.
It has no separate legal personality, has no minimum capital requirement and has the freedom to contract. Since the LPF has no legal personality, for all legal and business purposes will be represented by its general partner.
The limited partnership agreement (the “LPA”) must have provisions on admission and withdrawal; rights and obligations; investment scope; financial arrangement on capital contribution, capital withdrawal, distribution of proceeds, claw-back obligations etc.
General Partner (“GP”)
GP’s will have unlimited liability for all debts and obligations of the LPF, and ultimate responsibility for its management and control. A GP can constitute of any of the following in this instance:
The GP must ensure that there is proper custody arrangement for the assets of the LPF as specified in the LPA. The GP shall file an annual return to CR within 42 days after each anniversary of the date on which registration certificate was issued.
Since this is a partnership, there is no requirement for the LPF to have a company secretary. The statutory regulatory obligations of the LPF can be fulfilled by either the GP, or anyone else on behalf of the GP.
Limited Partner (“LP”)
LP participates in the economic return of the LPF with no day-to-day management rights and control over the assets of the LPF. Any of the following can be an LP in this instance:
If a limited partner in a LPF takes part in the management of the fund, the limited partner and the general partner in the fund (and, if applicable, the fund’s representative) are jointly, and individually, liable for all the debts and obligations of the fund incurred subject to safe harbor provisions.
Investment Manager, Auditor, Responsible Persons
The GP of the LPF must appoint an investment manager to carry out day-to-day investment management operations. The GP itself can also be appointed as the investment manager. The investment manager can be a natural person (at least 18 years of age) or a Hong Kong incorporated company or a registered non-Hong Kong company.
The GP of the LPF must also appoint an auditor to carry out annual audits on the financial statements. Practice unit as defined by section 2(1) of the Professional Accountants Ordinance (Cap. 50) can only be appointed as the auditor. The auditor must be independent of the GP and the investment manager of the LPF.
The GP must appoint a Responsible Person (the “RP”) to carry out Anti-Money Laundering measures according to Schedule 2 of the Anti-Money Laundering Ordinance of Hong Kong. The RP can be:
The GP can also act as the RP provided the GP falls in one of the above categories. The LPF must outsource the AML functions to the RP.
Registration of LPF
The application for registration of the LPF must be submitted on behalf of the general partner of the LPF to the Hong Kong’s Companies Registry by a law firm or solicitor in Hong Kong. A certificate of registration will be issued to LPF.
Distribution to Partners
Withdrawal of capital contributions from a limited partnership fund, and the distribution of profits and assets of the fund are permitted, if the fund remains solvent following such withdrawal or distribution.
To keep records
The GP or the investment manager is responsible for keeping the records of the LPF either at the registered office of the LPF or at a place in Hong Kong as intimated to the CR. These documents will comprise of financial statements, register of partners, AML documents of the customers of the LPF as specified in section 20(1)(b) of Schedule 2 to the Anti-Money Laundering and Counter Terrorist Financing Ordinance (Cap. 615), transaction documents and the controller of the each of the partner (GP and LP) in the LPF.
The register of partners should contain the following information for natural person (similar information should also be kept for a non-natural person):
Fund registered under Limited Partnerships Ordinance (Cap. 37)
A fund set-up under the Limited Partnership Ordinance can be migrated to become a fund under LPF Ordinance. No other type of migration to LPF regime is allowed whether domestic (e.g. OFC) or foreign.
How we can help?
Operational since 2008 in Hong Kong, we have a team of 40+ locally based professionals who understand the market and deliver on-the-ground services to serve our Hedge Fund and Private Equity clients.
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